Business loans can finance business expenses such as equipment and real estate. You will typically borrow the entire amount upfront and then pay it back over some time, usually at a fixed rate.
Unlike small-business loans which offer smaller amounts of loans, commercial loans are typically larger and can be used to finance established large and medium-sized businesses.
Lenders can set their borrowing criteria. However, most require at least two years of business experience, good credit, and an annual income that shows the ability to pay the debt obligation. Commercial business loans often require collateral, a business asset the lender can take over if the business defaults. The type of loan will determine the collateral.
Different types of commercial business loans
Some lenders offer specific types and purposes for commercial business loans. These common business loans might be a good fit for your business:
- Equipment financing. You can finance equipment with a loan if you have the funds. The equipment usually secures this financing. The lender can seize the equipment if you fail to repay.
- Commercial real estate loan. Like a mortgage for your home, commercial real estate loans help you buy or remodel business property. The collateral is the property.
- Commercial auto loan. This loan can help you purchase vans, trucks, or other vehicles for the business. A commercial auto loan uses the collateral of the vehicle you finance as collateral.
- Commercial construction loan. These loans can pay for renovations and new buildings. Most likely, the property serves as collateral.
- A bridge loan. These are short-term loans used in commercial realty. They can cover financing gaps and use the property as collateral.
- Inventory financing. It is possible to get inventory financing to buy bulk products or materials before you sell them. The products you purchase are often the collateral for inventory loans.
Where can I find commercial business loans?
Although banks are the most common lenders for commercial business loans, they don’t have to be the only ones. Online lenders, the U.S. Small Business Administration and some nonprofit lenders are also options.
Many banks offer loans for business owners. Many banks require that business owners have good credit scores (FICO score of at least 670). They may also check your credit score if you have one. You might need to satisfy other requirements depending on the lender. These include being in business for at least two years, having collateral, and meeting minimum annual revenue.
Online lenders may also be available for commercial loans. Online lenders are more efficient than banks regarding funding and application times. Online lenders may have more flexible borrowing requirements, which can be beneficial if your business has been around for less than two years.
However, before you borrow from an online lender, ensure that the lender has been registered with the appropriate agency and has a positive reputation on trusted review sites such as the Better Business Bureau (BBB).
SBA partners up with lenders to offer government-backed commercial loans for business owners. The SBA offers 554 and 7(loans up to $5,000,000 and microloans up to $50,000.
There are different eligibility requirements, but you must have your company defined by the SBA as a business and not be in default on any other debts. You may be eligible for an SBA-guaranteed loan. It will allow you to receive counseling and education while you manage your business.
You may be eligible to borrow from a nonprofit lender or another microfinance institution with an alternative lending structure if you are looking for a microloan of $50,000 or less. The SBA supports microloans from its partner lenders, as mentioned.
Some nonprofit lenders are limited to certain areas or states, but others can serve all businesses. Before applying for financing, make sure you confirm your information with the nonprofit lender.
How to get a commercial business loan
These steps will help you get a loan for your company.
Understanding Your Situation
Be prepared to talk with a lender about your business details and why you need financing. The lender will need to know how the loan will benefit your business and what for.
It is important to understand your financial situation before determining the type of loan that will work best for you, the amount you need to borrow, and the repayment terms.
Calculate your loan amount
Based on your company’s financial situation, determine how much money you will need to reach your business goals. Then set an affordable monthly payment. It would help if you only borrowed what you could repay. Otherwise, your business could benefit from a commercial loan.
Check Your Eligibility
Although lending criteria can vary from lender to lender, most require good credit scores and at least two years of business experience. Although not all lenders will disclose the required credit score, it is a good starting point at 670, according to FICO’s scoring model.
You can check your credit score for free through many online credit reporting sites. It’s also worth ordering a free copy of your credit report from AnnualCreditReport.com to check for any errors.
Your lender may also require you to meet a minimum annual income requirement. It will vary from lender to lender, but you can expect annual requirements of approximately $250,000. Allows the lender to ensure you can repay the loan on time and in full.
Compare lenders to find the best deal for you. While some lenders offer lower rates, others may offer higher loan amounts and more flexible borrowing requirements.
It’s always a good idea to confirm that a lender is trustworthy using a site such as Trustpilot or the BBB.
You can shop around to find the right loan for your company.
Apply for a Loan
Once you have found a lender who is a good fit for you, you can apply. Many lenders require specific documentation about your business. Includes tax returns, financial statements and accounts payable documents. If necessary, any collateral is required to secure the loan. A business plan detailing your goals and how the loan will assist you in achieving them may be required.
When you get an offer for a loan, be sure to read the terms. You should review the loan terms, including your monthly payments and interest rate. To determine what your budget can handle, you can use the Commercial Lending USA Advisor loan calculator.
After your loan, you will likely begin paying it back in fixed monthly payments for a specified period. Set up automatic payments to ensure you get all bills. You can improve your credit score by staying on top of your loan payments and avoiding default.
Alternatives to Commercial Business Loans
Commercial business loans typically offer lump sums upfront, which you then pay monthly over several years. You can get a longer-term loan if this option doesn’t suit you.
- Business credit lines. Business credit allows you to access the funds that you need. You can use the credit line as much as you need up to a limit instead of getting all the money upfront. You will only pay interest on the amount borrowed and be responsible for making payments.
- Business credit cards. Another option is a business card to spread out your payments over time. While you may be able to earn rewards for purchases, the interest rates can be high. You’ll also likely have a lower credit limit than with a line of credit or business loan.
- Business grants. Other than borrowing money, it is worth looking into business grants. Funding may be available from private companies, government agencies, or nonprofits. Grants.gov and local small business agencies can help you find grant programs and submit applications. Although grant applications are often competitive, it could be worth your time if you get the money you don’t have to repay.
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