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How to Get a Commercial Loan

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Commercial Loan & Financing Options

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.

What is a commercial business loan?

A commercial business loan is a loan that is given to a business in order to help with the costs of expanding the business or for other business-related expenses. The terms of the loan will vary depending on the lender, but they typically involve the borrower paying back the loan over a period of time, with interest. 

Commercial business loans can be used for a variety of purposes, including purchasing new equipment, hiring additional staff, or refurbishing premises. When applying for a commercial business loan, it is important to have a clear plan for how the loan will be used and how it will be repaid. Lenders will also take into account the financial history of the business and its ability to repay the loan. 

For this reason, it is important to have strong financial records and a good credit history when applying for a commercial business loan.

How commercial business loans work

Commercial business loans are a type of financing that allows business owners to access capital for their operations. There are many different types of commercial business loans available, each with its own terms and conditions. The most common type of commercial business loan is a term loan, which is typically repaid over a period of one to five years. 

Another popular type of commercial business loan is a line of credit, which can be used for a variety of purposes such as working capital, inventory financing, or expansion. Lines of credit typically have higher interest rates than term loans but offer more flexibility in terms of repayment. In order to qualify for a commercial business loan, businesses must have a strong credit history and demonstrate the ability to repay the loan on time. 

Loans are typically secured by collateral such as real estate or equipment, which the lender can seize if the borrower defaults on the loan.

What can a commercial business loan be used for?

A commercial business loan can be used for a variety of purposes, including working capital, inventory, marketing, or expansion. The key is to have a clear understanding of how the loan will be used and to have a solid business plan in place. Borrowers should also be prepared to provide financial statements and other documentation to the lender. 

Commercial business loans typically carry higher interest rates than personal loans, so it's important to shop around and compare offers before signing on the dotted line. However, for businesses with strong credit histories, a commercial loan can be an excellent way to finance growth and expansion.

Pros and cons of commercial business loans

When it comes to business financing, there are a number of options available to small business owners. One option is to take out a commercial loan from a bank or other financial institution. Commercial loans can provide much-needed capital for businesses of all sizes, but they also come with some risks. Before taking out a commercial loan, it’s important to understand the pros and cons.

PROS

  • One of the biggest advantages of a commercial loan is that it can be used for a variety of purposes. Whether you need to purchase new equipment, expand your facilities, or cover unexpected expenses, a commercial loan can give you the flexibility you need. Additionally, commercial loans are often available at lower interest rates than other types of financing, such as lines of credit or credit cards. This can save you money in the long run.

CONS

  • However, there are also some disadvantages to taking out a commercial loan. One downside is that you may be required to put up collateral, such as your business premises or equipment, in order to secure the loan. If you default on the loan, you could lose your collateral. Additionally, commercial loans can be difficult to obtain if you have bad credit. And finally, if you take out a variable-rate loan, your interest rate may fluctuate over the life of the loan, potentially costing you more money.

What kind of interest will I expect to pay on a commercial business loan?

The interest rate on a commercial business loan will vary depending on a number of factors, including the size of the loan, the term of the loan, and the creditworthiness of the borrower. Generally speaking, the interest rate on a commercial business loan will be higher than the rate on a personal loan or a mortgage. 

This is because commercial loans are considered to be higher risk than other types of loans. The best way to get an accurate estimate of the interest rate you will pay on a commercial business loan is to speak with a lender. They will be able to provide you with an estimate based on your specific situation.

What credit score do I need to qualify for commercial business financing?

A high credit score signals to lenders that you're a responsible borrower who is likely to repay your loans on time. Conversely, a low credit score may make lenders hesitant to approve your loan request. So, what credit score do you need to qualify for commercial business financing?

Generally speaking, you'll need a credit score of 620 or higher to qualify for most business loans. However, some lenders may require a higher score, and others may be willing to work with you if your score is slightly lower. In addition to your credit score, lenders will also consider your business's revenue, expenses, and cash flow when making a loan decision.

Do I need to provide collateral to obtain a commercial loan?

One common requirement for commercial loans is collateral, which is property or other assets that can be used to secure the loan. If a business is unable to repay the loan, the lender may be able to seize the collateral to recoup their losses. For some businesses, such as startups, raising enough collateral can be a challenge. 

However, there are also many types of commercial loans that do not require collateral. These loans may come with higher interest rates and shorter repayment terms, but they can still be a useful option for businesses that are unable to provide collateral.

 Ultimately, the decision of whether or not to provide collateral for a commercial loan should be based on a careful evaluation of the risks and benefits.

Who can apply for a commercial business loan?

When it comes to financing a small business, there are a number of options available to entrepreneurs. One popular option is a commercial business loan. Commercial loans are typically provided by banks and other financial institutions, and they can be used for a variety of purposes, from buying inventory to expanding your operations.

In order to qualify for a commercial loan, businesses must usually meet certain criteria, such as having a minimum amount of revenue and being in operation for a certain period of time. However, the requirements can vary depending on the lender. If you're thinking of applying for a commercial loan, it's important to do your research and make sure that you understand the eligibility requirements and terms of the loan before you apply.

Do I need to provide a downpayment to get a commercial loan?

When you’re ready to take your business to the next level, you may be considering a commercial loan. But before you apply, it’s important to understand the requirements. One common question is whether or not you need to provide a downpayment. The answer depends on the type of loan you’re seeking. 

For example, if you’re applying for an SBA loan, the government agency will usually require a downpayment of at least 10%. However, for a traditional bank loan, the downpayment could be as low as 20%. So before you start the application process, be sure to ask about the down payment requirements. That way, you can be prepared with the necessary funds.

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.

Compare Business Loans

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.

Compare Business Line of Credit Options

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

Compare SBA Loan Options

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.

Compare Invoice Financing Options

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.

Is a commercial loan for your business right for you?

When it comes to financing your business, there are a number of different options to choose from. One option is to take out a commercial loan. But is a commercial loan right for you? Here are a few things to consider:

First, what is the purpose of the loan? If you need the money for short-term purposes, such as inventory or equipment, then a commercial loan may be a good option. However, if you're looking for long-term financing, such as real estate or expansion, you may want to consider other options.

Second, how much money do you need? Commercial loans can range from a few thousand dollars to millions of dollars. Make sure you have a clear idea of how much money you need before you begin shopping around for loans.

Third, what are the terms of the loan? Commercial loans typically have shorter terms than other types of loans, such as mortgages. This means that the payments will be higher, but you'll also have the money paid off quicker. Make sure you can afford the payments before taking out a loan.

Fourth, what are the interest rates? Interest rates on commercial loans can vary widely, so it's important to shop around and compare rates before choosing

Compare offers online

If you're a small business owner in need of a commercial loan, you may be wondering where to start. With so many options available, it can be difficult to know which lender is right for you. However, by doing some research and comparison shopping, you can find the best deal on a commercial business loan. One way to compare offers is to use an online service like PrimeRates. 

By entering some basic information about your business and the loan amount you need, you can get Instant results from a variety of lenders. This makes it easy to compare rates and terms to find the best offer for your business. With a little effort, you can save time and money by finding the right commercial business loan for your needs.

Ready to find the funding you need?

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