Fixed Commercial Loan is similar in nature like residential Loan. In residential loan you have to pledge real property as guaranty. When you use such loan for raising fund for business or to buy property, the lender keep hold of interest to that property till loans fully repaid. Repayment period can be your choice, start from short to longer duration.
Principal and interest part of advance recovered by lender throughout life span, on being defaulter, the lender has right to foreclose and take possession of the property that has kept as guaranty. You should aware that interest of loan is tax deductible and income from such advance is considered as non-taxable. But be sure that tax penalty can be severed. You should assure that funds were not used for any qualified business purpose or for any tax saving purpose.
If you take loan for business and not for buying property, lender may re-finance your current borrowed money to level that you are in need, or lend only the difference between current value of business property and amount that you are debt on current loan.
For commercial loans, two types of interest schemes prevailed. Fixed rate business credit, where interest rate that is in place either for life of credit taken or for fixed time duration. If chosen fixed period of time then, converted as variable interest rate after fixed time period expires.
Read carefully contract document about ERC (Early Redemption Charge), as this clause states, if you pay off the note prior to the end of fixed rate period, the lender is entitled to one-time lump fee to offset their loss of expected income. Sometime ERC may be extended to longer period, up to entire term of financed money. Now-a-day competition among lenders, you negotiate about ERC term to drop.
Variable interest rate applicable, based upon rate issued by Bank of England. Lender states that rate consists of published rate and will likely to go up or down over its life span, it may have some pre-determined premium that remains same for full term of advance taken. You must aware how frequently rate is changing and you shall happy with amount charged. You should negotiate about both of these factors to lender.
It is dynamic situation for selection about type of interest. Fixed rate business credit is good choice in situation when interest rates likely to go upwards, if economic indicator point to downtrend, then variable rate is best choice.
For maximum benefit, keep on changing, i.e. if you choose fixed rate and interest rate dropped down, consider for applying re-finance and apply for variable interest rate for lower rate advantage. If situation reversed, then move into fixed rate to protect you.
