How To Apply For A Commercial Loan And The Different Types Of Loans

Deciding to seek out a business loan shouldn’t be done overnight. Entering into any situation where you owe money is a serious thing. Those who enter into this sort of thing too hastily often have difficulty paying it back or can even lose the commercial assets they have as collateral. Be sure that you totally understand what is a commercial loan and never forget to speak with financial advisers before entering into a commitment. Once a loan agreement is signed, it’s finite. 

For those of you who have done your homework and know that this is the right decision for you and your business, the process for applying for a commercial loan is fairly simple. There are many different types of commercial loans. Most people will be able to find one even if they do not have a clear business model or credit score; however, banks denying you should be considered a sign to some degree that you aren’t making the best decision right now. If you completely know how does a commercial loan works and you see to yourself that you are ready to apply for it, here are some things you need to bear in mind. 

First Things First: Choose The Type Of Loan You Need

It’s important to understand what is appropriate for your business venture. There are many different types of commercial loans. Some are better suited for those who are interested in flipping real estate. Some are better suited for those who would like to buy more inventory. There are ones that’ll help with day to day overhead costs. The type of help you need matters a great deal when applying for a business loan. Here are several things for you to consider:

  • Traditional Term Loans

These loans come in the amount of $5,000 to $500,000. A great deal of money can be taken out by those with excellent business models and great credit scores. There is an interest rate with a traditional term loan. This interest rate will be determined by your credit score and the amount of money you wish to receive. The typical interest rate for this type of loan is 7% to 10%. Banks offer a varying length of time when it comes to paying back this type of loan. Some banks will ask the borrower to pay the loan back within five years. This short amount of time is with smaller loans. A hefty loan like $300,000 could see a term as high as 25 years. 

  • Equipment Loan 

This loan can be borrowed for up to 100% of the cost of your needed equipment. Equipment is a serious expense for businesses that are just starting out. Businesses that have been running for a while may need to replace their equipment over time. An equipment loan can be an excellent way to do that. These loans can have commercial interest rates as high as 30%. They have one to a five-year term. 

  • Business Line of Credit 

This is not a traditional loan; however, you are still borrowing money from a bank. A bank issues a line of credit for you to use for business expenses. It is sort of like a credit card. The convenient thing about a line of credit is that you can use it again. After you pay it off, you still have the credit available. 

There are other options when it comes to loans. It’s important to become familiar with them. It’ll be easier to pick the one that’s best for you. 

It’s Important To Find Out If You’re Eligible

Some lenders have minimum eligibility requirements that you can see before you even apply for the loan. If you meet the requirements, there is a high chance that they will give you something. Still, meeting the minimum requirements does not mean you will be approved. The only way to know for sure is to send in an application. 

You’ll Need Your Documents

With every lender, there is paperwork involved. Some lenders require a lot more paperwork than others. Loans that are more formal, or for higher amounts, will come with a lot more paperwork than loans that are not. Check with the lender to see if you have the right documentation to start this process. They may require proof of income or identity verification. 

Wait For A Response

Once your application is completed, you will receive a response. Some loan companies may ask you to put a commercial loan downpayment for faster approval of your loan. Others will come back to you and offer a smaller amount of money then you requested if they believe you cannot be trusted to pay back the high amount you asked for. In some cases, it’s the opposite. You may be offered a much higher loan than you requested. You and the bank will decide what is best for you.  

They will also come back to you with an offer of term length. The biggest effect on term length is the amount you borrowed. If you borrowed a high amount, you will be asked to pay that back in a longer period of time. Other factors that might weigh in are your credit score, income, and business projections. 

Accept The Loan

It’s time to accept the loan once you are sure that taking this loan out is the right idea and you are settled on the amount you’ll need. After it’s accepted, there is no turning back. You should always check with yourself at the last minute to make sure this is something you actually want. Do you really need this loan? What is your plan to pay it back? You should ask yourself questions like these before you accept it. 

Is It Time To Apply? 

If you feel that a commercial loan could really benefit your business, it may be the right time to apply. Those who wait could end up dramatically harming their business if it is in financial trouble or needs certain inventory right away. Businesses can bounce back if you find a solution to help them in the here and now. Also, small businesses can be started with nothing to fund them on. A commercial loan can be an excellent investment. Talk with a financial advisor and loan companies to see if this is the right decision for you.