What Is a Commercial and Industrial (C&I) Loan?

Definition

A commercial and industrial (C&I) loan is given to a business for commercial or industrial purposes. These loans provide funding for qualified business expenses, including working capital.

 A business owner reviews paperwork while behind the counter of his menswear shop
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Definition and Example of a Commercial and Industrial (C&I) Loan

Commercial and industrial lending is one branch of lending that differs from consumer lending, commercial real estate lending, or residential real estate lending. A C&I loan is given to a business like a sole proprietor, corporation, or partnership.

These short-term loans are typically used for business needs, such as equipment investment, hiring, and purchasing inventory. Commercial and industrial loans may be either secured or unsecured.

C&I loans can be given as a lump sum or a revolving line of credit. Businesses may be required to put down some type of collateral to secure the loan, like equipment or cash receivables. 

The Small Business Administration’s Paycheck Protection Program of 2020 is one example of a commercial and industrial (C&I) loan. 

Note

If you want to take out a business loan, you need a good credit score. Lenders want to see that you have a history of paying your bills on time and keeping your outstanding debts low. 

How a C&I Loan Works 

If you need funding to start a business or a small business expansion, C&I loans can be a good option. C&I loans may be easy to obtain, though you will have to put down collateral. 

You need to put together a loan proposal based on the bank’s requirements to get a commercial loan. This proposal might include:

  • A business and management experience profile
  • Loan request 
  • Loan repayment
  • Collateral
  • Personal and business financial statements
  • How much the owner plans to put into the business to secure the loan
  • Income and cash flow projections

A Small Business Administration loan is a type of commercial loan. This commercial loan conforms to SBA’s requirements and receives an SBA guarantee, which transfers the borrower’s risk from the lender to the SBA.

C&I Loan Types

The type of loan you apply for depends on your business needs and how much you’re looking to borrow. Different lenders may call loans by varying names. 

Working Capital and Seasonal Loans

These loans are common in manufacturing, distribution, retailing, and service businesses and may either be short-term loans or a line of credit. The loans provide temporary capital beyond everyday needs, for example, seasonal requirements. Many working capital loans rely on accounts receivable or inventory for collateral. These commercial credit terms may be as short as 12 months. 

Term Business Loans 

These loans can help acquire capital assets, such as equipment or vehicles, or make improvements. They may also be used for debt consolidation and refinancing. Term loans are typically longer term, secured, require regular payments, and may contain restrictive covenants. They may have a fixed or floating interest rate. 

Note

If your priority is cash flow to cover the daily expenses in your business and have a large number of outstanding invoices, you may want to look into invoice factoring and accounts receivable financing.

Pros and Cons of a C&I Loan

Pros
  • Access to funding

  • No need for equity investors

  • Variety of options available


Cons
  • Short-term repayment schedule

  • Your business at risk

  • High interest rates

Pros Explained

  • Access to funding: C&I loans can give small businesses the funding to maintain working capital and expand business operations.
  • No need for equity investors: A C&I loan can be a faster way to access funding directly without spending money and time on equity investors. 
  • Variety of options available: A C&I loan could be a line of credit or a term loan with regular payments. 

Cons Explained

  • Short-term repayment schedule: Some C&I loans must be repaid quickly. 
  • Your business at risk: When you put up aspects of business operations as collateral (such as a vehicle), non-repayment of the loan could lead to losing that collateral.
  • High interest rates: C&I loans tend to come with higher interest rates than other loans. 

Key Takeaways

  • A commercial and industrial (C&I) loan is given to businesses, not individuals. 
  • These loans can be used for capital expenditures, working capital, and other qualified business expenses. 
  • C&I loans are usually short-term loans backed by some type of collateral. 
  • C&I loans are a good option for businesses that need funding and don’t want to attract equity investors.
  • However, these loans may come with high interest rates and shorter term repayment schedules. 

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. U.S. Small Business Administration. "How to Prepare a Loan Proposal." 

  2. Small Business Administration. "Finance Primer: A Guide to SBA’s Loan Guarantee Programs."

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