Commercial business loans fund business expenses like equipment or real estate. When you borrow, you usually get the entire amount up front and pay it back over time, often at a fixed interest rate.
In contrast to small business loans, which have lower loan amounts, commercial loans typically have higher loan amounts and are tailored to establish medium- and large-sized businesses.
While lenders establish their own lending criteria, they typically require at least two years in business, good credit, and annual revenue that demonstrates the ability to afford the debt obligation. Furthermore, commercial business loans typically require collateral—a business asset that secures the loan and can be repossessed by the lender if the business defaults. The type of loan determines the specific collateral.
Featured Partner Provides Various Commercial Business Loans
Some lenders commercial loan truerate services for specific purposes. Some common business loans that may be suitable for your company include:
Finance for equipment. If you need to buy business equipment, you can finance it with a loan. This type of financing is typically secured by the equipment, which means that if you do not repay on time, the lender may seize it.
Loan for commercial real estate. Commercial real estate loans, similar to home mortgages, assist you in purchasing or remodeling commercial property. The property functions as collateral.
Commercial car loan this type of loan could assist you in purchasing vans, trucks, or other commercial vehicles. The vehicles you’re financing are typically used as collateral for a commercial auto loan.
Loan for commercial construction. These loans assist you in financing renovations or new construction, whether for office space, a multi-family real estate investment, or another project. The property is most likely used as collateral for the loan.
A bridge loan Bridge loans, which are commonly used in commercial real estate, are short-term loans that help you bridge a financing gap and use the property as collateral.
Financing for inventory. Inventory financing may allow you to buy products and materials in bulk before selling them. Inventory loans are frequently secured by the products you purchase.
Where Can I Get Commercial Business Loans?
Many banks provide commercial business loans, but they are not the only ones. You could also look into online lenders, the United States Small Business Administration (SBA), and some nonprofit lenders.
Banks
Many banks provide commercial loans to entrepreneurs. Most require that the business owner have good personal credit (at least a FICO score of 670); they may also check your company’s credit score if it has one. Other requirements, depending on the lender, may include being in business for at least two years, securing your loan with collateral, and meeting minimum annual revenue requirements.
Lenders On The Internet
You could also look into commercial business loans from online lenders. When compared to banks, online lenders have faster application processes and funding times. Furthermore, they may have more flexible borrowing requirements, which could be advantageous if you’ve been in business for less than two years.
However, before borrowing from an online lender, ensure that the lender is registered with an appropriate agency and has a good reputation on a reputable review site like the Better Business Bureau (BBB).
SBA
The SBA works with lenders to provide business owners with government-backed commercial loans. It provides 504 and 7(a) loans of up to $5 million, as well as microloans of up to $50,000.
Eligibility requirements vary, but your company must be classified as a business by the SBA and you must not be in default on any other debts. If you qualify, you may be able to find an SBA-guaranteed loan with competitive interest rates and fees, as well as counselling and education to help you run your business.
Nonprofit Financial Institutions
If you need a microloan (typically $50,000 or less), you might be able to get one from a nonprofit lender or another microfinance organization that uses an alternative lending model. As previously stated, the SBA also backs microloans made by its partner lenders.
While some nonprofit lenders only serve specific states or regions, others serve businesses across the country. Before applying for financing, confirm with any nonprofit lenders.
How To Apply For A Commercial Business Loan
The steps below can assist you in obtaining a commercial loan for your company.
1. Recognize Your Situation
Before meeting with a lender, make sure you’re prepared to discuss the specifics of your business and why you need financing. A lender will want to know what you intend to use the loan for and how it will help your business grow.
Clarifying your financial situation will also assist you in determining what type of loan is best for you, how much you need to borrow, and how you plan to repay the loan.
2. Determine The Amount Of Your Loan
Determine how much you need to borrow based on your business situation in order to achieve your goals while maintaining an affordable monthly payment. If you borrow more than you can afford to repay, your commercial business loan may end up impeding your company’s growth.
3. Verify Your Eligibility
Lending criteria vary by lender, but most require a good credit score and a minimum of two years in business. While not all lenders disclose their minimum credit score, a good score in the FICO scoring model begins at 670.
Various online credit reporting websites allow you to check your credit score for free. It’s also a good idea to order a free copy of your credit report from AnnualCreditReport.com to check for mistakes.
Your lender will almost certainly require you to meet a minimum annual revenue requirement. Although requirements vary by lender, you can expect to pay around $250,000 per year. This assists the lender in determining whether you can afford to repay the loan in full and on time.
4. Examine Lenders
Spend some time comparing lenders to find the best deal for you. Some lenders may offer lower interest rates, while others may offer larger loan amounts or more flexible borrowing criteria.
As previously stated, it’s always a good idea to check a lender’s reputation with a site like the BBB or Trustpilot.
You can find the best loan for you and your business by shopping around.
5. Fill Out The Loan Application
It’s time to apply once you’ve found a lender that works for you. Most lenders will require specific business documentation, such as tax returns, financial statements, accounts payable documents, and any required collateral to secure the loan, if applicable. You may also be required to submit a business plan outlining your goals and how the loan will help you achieve them.
If you receive an offer, make sure to read the loan terms carefully. Examine your interest rate, monthly payments, and loan terms. If you are unsure about what you can afford, use the Forbes Advisor business loan calculator to determine what is best for your budget.
6. Begin Repayment
Once your loan has been funded, you will most likely begin repaying it with fixed monthly payments over a specified time period. Consider setting up automatic payments so that you never forget to pay a bill. By making your loan payments on time, you can improve your credit score while avoiding delinquency and default.
Commercial Business Loan Alternatives
Most commercial business loans provide lump sums that are paid off monthly over a period of several years. If this type of long-term loan is not suitable for you, you may have other options, such as:
Credit lines for businesses. A business line of credit, like a business loan, allows you to access the funds you require. Rather than receiving all of the funds at once, you can draw on the line of credit as needed up to a certain limit. You’ll make regular payments and only pay interest on the amount borrowed.
Credit cards for businesses. Another option for deferring payments is to use a business credit card. You may earn rewards on your purchases, but the interest rates may be relatively high, and your credit limit may be lower than with a business loan or line of credit.
Grants for business. Aside from borrowing money, it’s also worth looking into business grants. Nonprofits, government agencies, and private corporations may all provide funding. To find and apply for grant programmers, use resources such as Grants.gov or a local small business agency. While grant applications can be competitive, they may be well worth the effort if you receive money that you will not have to repay. Learn more
