Commercial Business Loans
One of the facts you may have already come into terms with is – your business will always need financing, whether small or big. Getting a new asset, rolling out a new plant, opening a new branch all have one thing in common – they need financing.
That also includes buying inventory and sorting out recurrent business needs like employee salaries, rent, and utility bills. These are crucial for the smooth day-to-day running of the business, and the ultimate growth.
However, there comes a time when your business just outgrows the small business loans that have flooded the financial markets today. No need to panic. That’s a good sign. And, most importantly, there are still options you can explore.
One of the most effective ones is commercial business loans. These are specially tailored to provide businesses as large as yours with funds it needs to stay afloat. In this article, we’ll cover everything about them. But, first, here are the top lenders
- Rates
- Loans Amount
- Terms
Credibly
- 9.99%-36%
- Up to $250,000
- 18 to 24 months
PNC Bank
- Fixed/variable rates
- $100,001-$3 million
- Up to 10 years
Fora Financial
- 1.10-1.40%
- $5,000-$500,000
- Up to 16 months
- APR range
- Fees
- Terms
- Amounth
- Unemployment protection
Bank 1
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Bank 2
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Bank 3
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Table of Contents
How do Commercial Business Loans work?
Commercial business loans are offered by banks, private businesses, and other traditional lenders. This debt-based financing is meant to go to such business expenses as acquiring a new asset, real estate, or paying for the normal expenses like rent and utility bills.
Like we’ll see later on in the post, these loans work differently. Different commercial business loans come with different eligibility requirements, interest rates, and general loan terms.
From commercial vehicles to medical and consultancy, these loans are available in every industry.
The whole point of commercial loans is to step in for those expenses the business would otherwise be unable to afford.
This financial arrangement between the business and financial institution in question helps the business, apart from taking care of expensive operational costs, sort out regulatory hurdles, and at times, prevent the direct access of equity and bonds market by the small businesses.
Commercial loans often require collateral, mostly property, equipment, or plant. The bank or whichever financial institution from which you receive the funding retains the right to repossess the property in the event of a breach of the lender agreement, or worse, bankruptcy.
Commercial loans often require collateral, mostly property, equipment, or plant.
Requirements to Qualify
Each commercial business loans lender has set policies borrowers must follow to qualify for a loan. So, you want to first check out with your lender; find out what requirements they have and how best you can meet them.
However, here are the general lender requirements. But first, you must be a legal resident of the United States. You must have also attained the age of majority, usually 18 years in most states.
- Business revenue – most lenders will require a 2-year revenue report. You must, therefore, be a sole owner, or own part of an existing business to apply for a commercial business loan
- Credit Score – you can apply for financing with a credit score as low as 550. However, this will only deny you loans with most lenders. And, when you get one, you’ll be forced to pay higher interests with unfavorable loan terms. A credit score above 600 is desirable
- Collateral – collateral is not required, at least not with all lenders. However, most lenders will require that you offer a valuable asset to act as security for your loan. This will get you larger loans with lower interests and flexible repayment terms.
- Documentation – commercial business loans involve huge sums. It’s only normal that such would require loads of paperwork. For the business, you’ll need such things as the registration certificate, income statements, balance sheets, bank statements, tax returns, and sales flow forecast. On the other hand, you’ll need your ID, social security number, tax return report, proof of residential address i.e. utility bill.
The above only covers a fraction of what some lenders would ask for. While meeting these requirements is crucial, you’ll not only go with any option just because you qualify for a loan with them. We discuss more on that below.
Types of Commercial Business Loans
The financial markets are flooded with all sorts of business financing. But even with the confusion that comes with such, you still need to make a smart choice. Such is key for the success of your business.
Here are the main types of commercial business loans;
1. Term loans
Most commercial business loan products are term loans. In this arrangement, you borrow a specific amount from a lender, which you’ll repay within an agreed period.
Most commercial term loans have a repayment period of up to 25 years, or more, depending on the specific lender and your relationship with them. Under this category, you’ll choose between mid-term (1- 5 years) and long-term (5 – 20 years).
If you already have a specific need for cash, such as product launch, then mid-term commercial loans will be your best short. These are very versatile and affordable. They are also your best shot if you don’t have an established business or good credit.
Long-term commercial loans, on the other hand, are harder to qualify for. Your business should mostly have been operational for at least two years. And, should have a stronger annual revenue.
For banks, whoever meets the qualification takes it. so, you want to make it harder to disqualify you by being on top of the loan’s requirements.
2. Equipment Loans
Most businesses usually revolve around equipment. Good equipment makes every business process, from production to distribution easier. However, such are often expensive, and will probably drain more than your capital.
A good commercial business loan can come in handy when acquiring equipment. Most financial institutions will offer you up to 100% of the actual value of the equipment.
You’ll then have up to 5 years, or more, to repay your loan. You’ll agree on convenient monthly repayment terms that work for both of you.
The funds cover manufacturing machinery, furniture, farm equipment, computers, even vehicles.
But, here’s the best part – you don’t need collateral for equipment loans. The equipment you’re acquiring will in itself act as collateral for the loan. The lender retains the right to repossess the equipment in case of a default. Rates for these loans range from 7 to 30%.
3. Commercial Real Estate Loans
Here’s a chance for you to get financing for your next warehouse, office space, or any manufacturing facility. These are expensive, you may not afford them without any form of financing. This is where commercial real estate loans come in.
Commercial real estate loans work the same as equipment financing. The property you’re acquiring serves as collateral for the loan. So, should you default payment, the lender moves to repossess it.
Since this is a low-lender risk loan, lenders charge lower interest rates. They also have a longer repayment period of up to 25 years.
4. Business Lines of Credit
If flexibility is one of your biggest considerations, then a business line of credit is our best shot.
A business line of credit is a type of revolving credit, more of a powerful credit card, best for relatively smaller businesses. Banks and credit unions are the main issuers of business lines of credit.
The lender sends the funds in a lump sum. You’ll have a credit limit you can’t surpass. You’ll then be drawing money here as your needs arise. You’ll only be charged interest on the funds used.
Your repayments will be spread weekly, monthly, or as per the agreement with your lender. Upon repayment, the funds go to the original amount. So you won’t have to keep reapplying for the loan.
5. Merchant Cash Advances
These are loans given against future debit/ credit card sales. A lender gives you funds in a lump sum then deducts a certain agreed amount from your sales till your loan is fully repaid.
Merchant cash advances are easy forms of financing to acquire. They come with interest rates of between 15 and 110%, are flexible, and would be even more ideal for small businesses.
Should you be unable to hit your weekly sales target, the lender will take an even larger cut from what is available till your loan is repaid. That makes them one of the most expensive forms of financing.
Merchant cash advances are generally best for borrowers with neither a good credit standing nor anything to offer as collateral. We can categorize them as short-term financing, and you should only turn to them as the last resort, given their high cost.
A credit score of 550 and a minimum of 2 years’ business history will easily get you one.
How Much Do Commercial Loans Cost
The cost of a commercial loan differs depending on the exact loan product in question. For instance, some commercial loans might require a down payment, depending on the loan amount in question and your credit history.
Almost all SBA loans don’t require a down payment, except the SBA 7(a) Loan that’ll require a 10% down payment. For commercial equipment financing, you’ll pay between 0 and 20% in down payment.
That aside, the purpose of the loan will also determine if you’ll pay a down payment or not. Be sure to check with your lender for more information on the same.
Similarly, the financial strength of your business will determine whether or not you’ll be off the down payment hook. Again, each lender has a well-laid out policy about this. Be sure to check with yours.
Apart from down payments, you may also spend loan charges and processing fees. This is common with almost every lender, but mostly traditional lenders like banks. Commercial business loans attract loan processing fees.
This is usually determined by the exact loan type and amount in question.
Apart from the processing fees and down payment, as you may have already guessed, you’re also obligated to pay interests. This also varies depending on the exact loan product.
Tips to Use Your Commercial Loans
Commercial loans are harder to close; at least harder than the household loans every borrower can get their hands on. And, one wrong move in acquiring a commercial loan could prove very costly.
Besides that, a potential lender could turn down your application last minute, or worse, bankruptcy could get in your way. Again, there are lots of swindlers out there posing as genuine lenders. Keep the following in check;
- Never rely on a single lender – in the whole lending business, only one person will have the final say. Banking all your hopes on a single lender can, therefore, turn out disappointing. We advise submitting your proposal to at least four lenders, then choosing the best among these. A business with good cash flow will always win you better loan terms, more significant loan amounts, and lower interests. We advise, first, focusing on growing your business revenue before approaching an institution for a loan.
- Use – there no specific uses for commercial loans. But, they would come in handy in acquiring a new asset, helping the business meet its operational needs, funding payroll, or acquiring supplies that’d make production and distribution smooth. Only go for these loans when you need them
- Ensure the size of your loan matches the size of your lender – Take small commercial loan requests to small and medium-sized lenders, and large commercial loan requests to large lenders.
- Have collateral – unless it’s asset financing, strive to have collateral. This gives you an upper hand in your loan negotiation.
Take small commercial loan requests to small and medium-sized lenders, and large commercial loan requests to large lenders.
Frequently Asked Questions (FAQ)
Get your paperwork right. That includes the business tax reports, annual revenue, and business registration. Approach a suitable lender between the ones we singled out above, go over their policies, submit your proposal and negotiate terms.
Commercial business loans are used as working capital, for asset acquisition, and inventory purchase. Business loans, on the other hand, are used for the day-to-day running of the business. Commercial loans are usually large and meant for larger business entities.
That all depends on your credit standing (and that of your business), your ability to repay (based on your current financial position, and behavior with past loans), and the availability of collateral.
That depends on the exact loan product and the lender in question. Most lenders will ask for a 30% down payment. Ensure you’re familiar with the lender policies on this, and you reach an agreement before committing.
Traditional lenders such as banks are sound.
Online Loans without Credit Score
When it comes to online personal loans without a specific credit score, the best option is with One Main Financial. This Indiana-based financial services company can allow you to borrow up to $20,000 with an APR range of 18% to 35.99%.
One Main Financial is great for those with bad credit scores but needs cash fast. This company does not factor in excellent credit scores in approving loan applications and can even accept those with lower-than-average credit. What matters to this lender is your ability to pay back the loan, and it should be apparent just from your application.
The drawback, of course, is this lender’s high rates. It has one of the highest rates among other online lenders, and it also charges an origination fee. But this can be ameliorated by adding a cosigner to your application or opting for its secured loan instead.
