Commercial and industrial (C&I) loan

The development of capital-intensive sectors depends on different factors, both macroeconomic and microeconomic, which are interrelated.

These factors can either favorably influence development or hinder it. Some specific features of large companies, such as insufficient capitalization or high risk, make them vulnerable to some factors that hinder the development of large projects.

One of the most important barriers is the financial barrier related to the lack of equity for development and difficulties in long-term financing (including commercial and industrial loans, C&I).

The market for C&I loans in the world is growing steadily, as this financial instrument is considered very simple, fast and safe.

GCAM Investment Group, a Spanish company with a strong international presence, is ready to offer flexible personalized solutions for large companies from different sectors, including commercial and industrial loans, project finance and loan guarantees.

Loans in the structure of large business financing

Large companies are afraid of the negative influence of competitors and maintain market share, which requires obtaining better financing conditions from credit institutions.

In a broad sense, the capital used to finance assets can be divided into internal and external.

Financing of projects mainly at the expense of own capital determines the independence of companies and a high level of trust in business. In addition, it motivates owners and shareholders and does not require the sharing of profits with other entities. It makes some companies very reluctant to use external financing, such as commercial and industrial loans.

The availability and forms of funding sources depend primarily on the size of the company and its growth phase, because this affects the potential of the business and its creditworthiness from the point of view of capital donors.

External capital is an additional source of financing, but it is often very important for the development of an enterprise.

Limited access to external funding, especially in the early stages of development, can be explained by the very high risk of the project. The transition of an investment project to the next phase usually leads to rapid expansion of the range of capital sources and financing instruments. This is especially true for capital raised from external sources.

Banks are traditional institutions that can support the development of enterprises. These financial institutions can issue short-term (up to one year), medium-term (from one to three years) and long-term (over three years) bank loans.

Depending on the purpose of financing, commercial and industrial C&I loans are divided into two large groups:

• Working capital loans are usually short-term and are used to finance current operations.
• Investment loans that are used to finance large projects, mergers and acquisitions.



Commercial and industrial loans are an important form of external financing, as they allow large companies to obtain funds for various projects.

Most banks offer products designed for businesses. Getting a loan is associated with deep documentary work to confirm the reliability of the borrower and guarantee the return of the loan. For obvious reasons, credit institutions are very distrustful of small enterprises, preferring larger and more reliable clients.

The basics of commercial & industrial loans

Commercial and industrial (C&I) loans include a wide range of business financing solutions, including short-term loans and investment loans for large projects.

It is critical for management to understand the advantages, disadvantages, bottlenecks and current methodologies for using commercial and industrial loans in business development.

Experts include in the group of commercial and industrial loans the majority of credit instruments that are issued for business purposes. These loans are usually issued to legal entities (companies). A loan to an individual entrepreneur can only qualify as a C&I loan if all funds provided are used by the borrower to develop commercial and/or industrial projects.

Formally, this group does not include such credit instruments as agricultural loans, loans secured by real estate and others. Funding provided to other financial institutions also does not qualify as C&I loans. C&I loans are one of the most accessible ways to finance large companies. Most of these instruments are essentially short-term and are backed by some form of collateral other than real estate.

Loan rates are pegged to a base rate such as the London Interbank Offered Rate (LIBOR).

Commercial and industrial loans can be used for different purposes such as the following:

• Working capital financing. Usually these are short-term loans that cover the current needs of the business. This is necessary for companies at the stages of development and expansion.

• Mergers and acquisitions. When companies plan to team up with other strategically important companies (for example, a supplier of an important raw material), C&I loans can be successfully used to finance the transaction and further development.

• Financing of capital assets. This group includes purchases of expensive equipment, technologies, materials, buildings and structures. C&I loans are, in fact, one of the most important instruments for financing long-term investment projects.

Commercial and industrial loans have fairly traditional parameters for business loan financing, including certain requirements for collateral, guarantees, etc.

Some of the requirements of banks that should be considered when preparing an application are listed below.

Collateral refers to valuable assets that a borrower can offer as security for the repayment of borrowed funds. Loans secured by liquid assets are easier to obtain and usually come with lower interest rates. It is easy to sell these assets in case of violation of the terms of the loan agreement in order to repay part or all of the debt. The form of collateral depends on the specific project.

Buildings, land, equipment, vehicles, raw materials, products in warehouses, as well as receivables can serve as collateral for commercial and industrial loans.

It should be understood that the lender determines the value of these assets, taking into account the inevitable loss of value over time.



Credit guarantees are important for companies that are starting to develop a business and for this reason are not ready to offer adequate credit security. Because it is extremely difficult to obtain an unsecured C&I loan in most cases, companies sometimes have to look for loan guarantees.

Such guarantees can be provided by large financial institutions, governments and other serious players who have authority in the financial market.

Table: Advantages and disadvantages of commercial and industrial loans.

Advantages	Disadvantages
C&I loans are much easier to obtain than equity financing. This provides ample opportunity to finance business growth. Unlike classic investments, lending institutions do not impose excessively strict requirements on project documentation, relying on the solvency of the borrower when making decisions.	The loan must be repaid usually in the short term, and the cost of servicing the debt can be high in the long run. The borrowing company must continue to repay the loan, using for this purpose the financial resources necessary for other current operations.
Company development financing using C&I loans can be completed relatively quickly if the borrower has the necessary collateral and loan application documents. Even with a valuable business idea and professional documentation, equity financing will still take a long time to find potential investors.	Banks' collateral requirements put assets at risk. If a borrower fails to meet debt obligations, this could result in the loss of highly liquid assets and disruption to business operations.

As we can see, business financing using C&I loans can become a simple and affordable tool for large companies and projects at different stages of their development.

GCAM Investment Group is ready to offer its corporate clients a wide range of financial services, including long-term investment loans, project finance (PF), loan guarantees, financial modeling and much more.

Contact our experts to find out more.