How do you define ‘Commercial Loans’ and what is the economic importance of these types of loans?

what are commercial loans

September 2000

Good question! A commercial loan, also commonly called a business loan, a commercial and industrial loan, or a C&I loan, represents an important line of business for the banking industry and a key source of funds for the business sector. Commercial and industrial lending is a major line of business for many banking firms as they provide credit for a wide array of business purposes — from inventory financing to investments in equipment — across a wide array of industry sectors, ranging from retail trade to manufacturing. Likewise, commercial loans from banks represent an important source of funding for corporations, partnerships, and sole proprietorships that make up the business sector.

Commercial and industrial loans, as defined by the Federal Financial Institutions Examination Council (FFIEC) in the commercial bank Call Reports (FFIEC 031, 032, 033, 034), include loans for commercial and industrial purposes to sole proprietorships, partnerships, corporations, and other business enterprises, whether secured (other than by real estate) or unsecured, single-payment, or installment.

Loans to individuals for commercial, industrial, and professional purposes, but not for investment or personal expenditure purposes, also are included. Commercial and industrial loans reported on the Call Report exclude the following: loans secured by real estate; loans to financial institutions; loans to finance agricultural production and other loans to farmers; loans to individuals for household, family, and other personal expenditures; as well as other miscellaneous loan categories. 1

Importance of Commercial Loans to the Banking Industry

Banking industry statistics show that commercial loans represent a very large share of the assets of the banking industry. According to figures from the Federal Reserve Statistical Release H.8 (510), Assets and Liabilities of Commercial Banks in the United States, commercial banks held $1066.5 billion dollars in commercial and industrial loans as of June 2000; these loans accounted for 18.1 percent of all bank assets. Over the ten-year period from 1989 to 1999, commercial and industrial loans outstanding at U.S. commercial banks increased by more than 50 percent.

Source: www.frbsf.org

Category: Credit

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