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How to Get a Commercial Loan

If you are looking to grow your business, or you simply need more funds to cover an unexpected shortfall in revenue, you’ll need to look to outside funding. Commercial loans are one of the best ways to find this additional capital.

7 Steps On How to Get a Commercial Loan

Step 1: What’s the funding for? The first thing you should do before even looking at commercial loan options is to determine why you actually need the financing. With many options available, this is a good way to filter out exactly which loans will be suitable for your business situation so that you can save yourself from spending time looking at loans you simply won’t qualify for. You’ll also have to tell potential lenders what you need the funding for.

There are a variety of reasons why a business owner will need a commercial loan, but here are the most common ones:

  • Covering unexpected expenses, such as an emergency or sudden business opportunity
  • Stabilizing cash flow, such as differing seasonal expenses
  • For growth for a startup
  • Expanding an existing business

Step 2: Figure out how much you want to borrow. You need to have accurate calculations on how you came to this number, especially if you’re applying for a large sum or to a loan with higher requirements.

Step 3: Prepare your documents. Prepare the majority of your documents now so you can have them to hand should you need them. This will help speed up the funding process. This should be things like your business plan, profit and loss, ID, and your own financial documents.

Step 4: Decide what kind of financing is best for you. See the next section for more information on the different types of commercial loans.

Step 5: Compare commercial loans. Use our tools to compare loans and ensure you only apply to those you have a high likelihood of acceptance with and are affordable. You can do that here.

Step 6: Apply. The lender will then guide you through the application process. Depending on the loan type and the lender, this can take anything from 24 hours to a few months.

Step 7: Get accepted and receive your funding. Once you’re accepted, you’ll soon receive your funding and can move ahead with your plans.

Types of Commercial Loans

With so many different business loans out there, it can be difficult to know which type is the best for you. Outlined below are the most popular types of commercial loans available and what they are suitable for.

Term Loans

Term loans offer a lump sum that is to be paid back over months or years. There are 3 types of term loans:

Traditional term-loans

These are typically large loan amounts offered by banks and larger lenders, with long repayment terms and low rates. However, they are the hardest type of term loan to qualify for.

Medium-term loans

These are more often offered by online lenders. They offer loan amounts ranging from $25,000 up to $1 million, with terms between 1 and 5 years. These are slightly easier to get with a lower credit score, shorter business history, and lower annual revenue, and interest rates around 6.5-20%.

Short-term loans 

These are the most attainable term loans if you have relatively bad credit. Loan amounts are offered up to $250,000, with terms ranging from 3 to 18 months. These do come with particularly high-interest rates ranging anywhere from 10% all the way up to 110%, so do your research before agreeing to a short-term loan.

Term loans are good for one-off expenses or opportunities, or as emergency funds.

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Business Lines of Credit

A business line of credit is good if you are looking for something a little more flexible.

This works much like a business credit card, except you only have to pay interest on the money you actually use, rather than the entire sum. You can use the funds as and when you need them and pay them back as you go. Once the money has been paid back, you can use it again and again as long as the line of credit stays open.

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Commercial Real Estate Loans

Commercial real estate loans are exactly what they sound like – financing to help you to buy commercial real estate or renovate your existing space or spaces.

This business mortgage is a long-term loan with low-interest rates, usually staying below 10%.

There are many commercial real estate lenders, including an SBA loan, which offers the CDC/504 loan and the 7(a) loan for this type of funding.

Compare Commercial Real Estate Loan Options

SBA Loans

SBA loans are potentially the most sought-after small business loans available, as they are guaranteed by the government, so there is much less risk to lenders. They offer up large loan amounts with low interest rates and long loan terms. However, this does mean that they have more strict qualification requirements, and there is a lot of competition to obtain one of these loans.

SBA loans are ideal for large expansions to businesses, acquiring businesses, or simply working capital, provided you’re happy to wait 2 weeks to 2 months for funding.

Loan Amount: $30,000 – $350,000
APR Range: 9.7% – 11.04%
Time To Fund: Typically take several weeks to fund, but can fund as quickly as within seven days.
Loan Term: Maximum loan term is 10 years.
Origination Fee: 4.00%
How To Qualify: 675+ Personal credit score
$50,000+ Annual revenue
Great Option For: Borrowers with good credit
SBA loans
Funding real estate purchases
Refinancing debt
Credit Check? Soft credit check and hard pull
Co-Applicants Accepted? No cosigners
Direct Pay-Off To Creditors? No
Click “Check Rates” to apply to SmartBiz

» MORE: SmartBiz SBA Loan Review

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Invoice Financing

Invoice financing is a unique type of commercial business loan that is only available to B2B businesses that use invoices to bill their customers.

An invoice factoring company will advance you up to 90% of the value of your unpaid invoice and holds the rest in reserve to charge interest upon, usually around 1% of the total value of the invoice. This will be charged for every week that your customer does not pay. Once the customer has paid the invoice factoring company, you are given back the reserve, minus the agreed fees of the factoring company.

If you qualify for this type of funding, it is good for keeping up with day-to-day expenses.

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Equipment Financing

Equipment financing is a common type of commercial loan that can help business owners to afford much-needed equipment, including machinery, vehicles, furniture, and technology.

Lenders will advance up to 100% of the value of your equipment, which you pay back over the agreed terms. This equipment is essentially used as collateral so that if you default on your repayments, the equipment lender will simply take back the equipment and liquidate it to cover the loan amount.

Compare Equipment Financing Options

How to Get Approved for a Commercial Loan

As well as determining exactly what you need the financing for, it is important to know what requirements you need to qualify for a commercial loan.

Different types of commercial loans and lenders will have different requirements for approval, there are typically three main factors that lenders will look at when deciding whether to approve you for a commercial loan:

Credit Score

Lenders look at your credit score as it is an indicator of how responsible you are with your finances. A higher credit score will show that, historically, you are good at paying your debts on time and in full, whereas a lower credit score will show that you may be more of a risk to lend to, as you may fall behind on repayments or fail to make them at all.

Having a credit score of 680 or above will give you a lot of options when looking for a commercial loan, but a credit score below 650 will be much more limiting as many commercial loans require a higher credit score than this to qualify.

This is why it is so important to work towards building your credit score as much as possible before applying for a commercial loan.

Time in Business

As you might guess, the older your business, the easier you will find it to qualify for a commercial loan. As you become that much more experienced over time, lenders have more confidence in business owners who have already been running their business for at least two years.

A new business is risky for a lender as there is not a lot of evidence that that business will be successful and that the borrower will be able to pay back the loan within the terms of the loan. Despite this, you may still be able to get a commercial loan as a new or startup business, but it is likely to be a short-term loan or line of credit with an online lender.

Annual Revenue

A potential lender needs to see that your business brings in enough revenue every year to be able to comfortably pay repayments, whether they be monthly, weekly, or daily.

If the loan amount you are applying for is larger than your average annual revenue, it is extremely unlikely that a lender would approve you for a loan. Typically, you will only get approved for a loan that is just a small percentage of your annual revenue. Therefore, if you are looking to get a larger loan, you will have to work towards boosting your annual revenue before you apply.

How Long Does It Take to Get a Commercial Loan?

After submitting your loan application, the time it takes to get a commercial loan varies depending on the lender.

Banks, SBA lenders, and commercial real estate lenders can take weeks or even months to get the funds to you. On the other hand, short-term loan lenders, invoice financing companies, and line of credit lenders may only take 2 or 3 days to get funding to you. If you need funding quickly, these should be the loan options you are considering.

How to Get a Commercial Loan with No Money Down

Many commercial loans require you to make a down payment, which can be difficult for some businesses to find. However, there are a few commercial loan options (mentioned above) that require no money down, although you may find that they are more expensive due to higher interest rates.

  • Term Loans – may require collateral and upfront fees
  • Business Line of Credit – can be secured or unsecured
  • Invoice Financing
  • SBA Microloan – loan amounts from $500 to $50,000 – no money down but qualifications are very specific

Getting a commercial loan with no money down can be complicated, so if this is something you need, see our article on no money down loans.

Ready to Apply?

When you’re ready to apply, don’t forget to compare loans to ensure you have the best chance of approval and get the lowest possible rates. You can do that with us here – click here to get started.

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