Getting a commercial loan means understanding what’s required to gain approval. Each lender is going to have a unique threshold for what’s allowed and what isn’t.
This is why it’s best to understand what is a commercial loan, the different options available to you, and how much is needed to get the loan approved.
This guide will take a look at how to apply for a commercial loan, how much is required as a down payment, and what lenders look for while assessing an applicant’s risk profile.
Downpayment for a Commercial Loan
Let’s begin with the basics.
To apply for a commercial loan, you are often going to need a certain amount for the down payment. This isn’t always the case and there are examples of lenders approving loans without asking for a single penny but this generally comes with a higher interest rate. As a result, it makes sense to avoid the higher commercial property interest rates and look at a loan that’s far more reasonable.
So, how much should be saved for the down payment?
In most cases, you are going to require at least 30% of the total amount. For example, if you are asking for $10,000, they are going to expect at least $3,000 in advance.
Once the down payment has been processed, the loan gets approved. This simplifies the lending process and makes it easier for you to sign up as an applicant. Below are the steps on how does a commercial loan works and the different factors to consider when applying for a loan.
Factors to Consider for a Commercial Loan
1) Pending Debt
It starts with something as straightforward as the amount of debt under your name. Imagine coming up to a lender and asking for money when you already have $100,000+ in debt. This poses a significant risk in the eyes of the commercial lender and they are going to think twice before approving the loan.
Of course, this isn’t always the case and a small amount of debt is natural in commercial situations. However, it’s highly recommended to be clear about the debt and make sure it is mentioned during the initial process. This can ensure the lender gets a proper look at your debt and can make a judgment call based on your history. This is going to vary from person to person and has to be kept in mind.
2) Down Payment
As mentioned before, there is going to be a down payment involved to bring the risk factor down on the lender’s end. They are going to want to simplify things as much as possible and the best way to do this is to set up a down payment. If you can muster up approximately 30% of the total amount, it’s going to be a lot easier for the lender to trust what you are saying. This also increases the likelihood of your loan application going through as fast as you want it to.
Think about putting in a down payment, if you have the opportunity to do so. This can not only gain approval from the lender but can also make it easier to ask for a higher amount.
3) Credit History
You will have to think about your credit history because it does have a role to play as a commercial application. When a business isn’t doing well, there is going to be added risk involved and that has a lot to do with how your credit history is right now. If your credit history is not as good as it should be, this is going to drag down your chances of gaining approval.
The goal should be to work on your credit history and start clearing as much of your debt as possible.
4) Working Capital
When it comes to commercial loans, you are also going to be asked about working capital. This is an essential detail that can go a long way when it is time to put in an application with the lender. The idea of working capital is to showcase how much money the business has that can be seen as an asset.
This is all about having enough working capital to remain on the good side of the lender and paint a good picture of your financial situation. If you are in dire straits, this can ruin your chances of getting the loan approved.
5) The Authenticity of Legal Documents
This is a critical detail that is often missed by lenders when it comes to gaining approval and getting the loan to go through. There is nothing worse than having the necessary amount to make a down payment only to realize the legal documents are not authentic for your business. These are relevant details that need to be kept up-to-date at all times. The lender is going to ask for this information and it’s pertinent to be ready with it as soon as possible. These are important questions that do matter and you should always have the relevant legal documents ready to go.
6) Longevity
Yes, the duration of your business and its history will get the job done. There is nothing better for a lender than a business that has been around for years and is generally known for doing well with its debt. This is going to bode well for your chances especially if you are running a well-known business that has been around for a long time. Going with a solution such as this can make all the difference in the world. This is the type of longevity that helps deliver results.
Final Thoughts
If you are someone that is going to be putting in an application with a commercial lender then it’s important to think about these factors right away. Whether it’s proving your longevity or making sure a down payment is made, it’s best to get started as soon as you can. This is going to help push things in the right direction and will simplify your approach over the long-term. A commercial loan down payment is a must in this day and age but it’s best to stay prepared for all of the variables involved in gaining approval. It will help save time and make sure you get the funds in the end.