When you’re just starting out, a personal loan, credit card, or small business loan might be just enough to get you going. But as your business grows, you’re going to need more working capital to fund operations, hire staff, open new locations, purchase inventory, and more. That’s where commercial loans come in.

Commercial loans are critical for helping your business expand and take things to the next level. They also provide ample resources to weather out cash crunches and stay ahead of the competition. There are many different types of commercial loans and numerous factors that go into your ability to qualify for one. Take a look at how commercial loans work.

What Is a Commercial Loan?

A commercial loan is any type of loan made to a business instead of an individual. They’re also known as small business loans, although some lenders might distinguish between the two.

In this case, small business loans will refer to lower funding amounts, while commercial loans feature higher funding amounts made to medium-sized and larger businesses. Any business looking to obtain a commercial loan will have to get approval from a lender, such as a bank or another financial institution.

The interest rates and repayment terms you receive will depend on your business’s qualifications. Most commercial loans are term loans that feature fixed monthly payments over a set timeframe. Many businesses are able to choose their repayment term, which can range from one year to 25 years – or even longer in certain cases.

In some cases, commercial loans are secured by collateral. Collateral gives lenders an extra layer of confidence since they maintain the right to seize your assets should you be unable to repay your loan.

Benefits of Acquiring Commercial Loans

Commercial loans introduce instant liquidity. The funds complement your revenue and, in turn, increase your purchasing power, allowing you to achieve a new caliber of growth.

Here are a few of the many benefits of securing commercial loans.

  • Streamlined cash flow
  • Greater purchasing power
  • Multiple payment structures to choose from
  • Ability to set your plans in motion without jeopardizing your cash flow
  • Opportunity to spread an expense over an extended timeline
  • Potential tax advantages on certain financing products

Growing businesses face larger and larger price tags. Whether they’re attached to an opportunity or challenge, the most successful entrepreneurs don’t let a dollar amount stand between them and their business’s full potential.

Commercial loans provide the resources businesses need to never take their foot off the gas pedal. However, make sure to approach your financing strategically to avoid overextending the capabilities of your business.

How to Get a Commercial Loan

Different types of lenders will have different requirements for obtaining a commercial loan. That said, there are some common similarities across most applications. Here are the most critical steps you should follow when it comes to getting a commercial loan.

Do Your Research

You’ll have to know all the ins and outs of your business before sitting down with a lender. Determine your business needs and pinpoint exactly how financing can help you reach the next phases of growth. It’s also important to understand what repayment terms your business can afford, the funding amount you need, and what sort of lending products fit best.

Know Your Credit Score

Your personal credit score and your business credit score are two of the most important factors lenders will look at when reviewing your commercial loan application. Ideally, your credit score should be at least 700 for the best chances of approval. Remember, the higher your credit score, the more negotiating power you’ll have when it comes to securing favorable terms and lower interest rates. If your business is new, you may not have established creditworthiness yet. In this case, your personal score will have more weight.

Prepare Documents

Commercial loan applications will require you to prepare several documents. This includes profit and loss statements, balance sheets, bank statements, tax returns, business licenses, and cash flow statements. Most lenders will also want to see at least 2 years of business history.

Devise Business Plans

Some lenders, especially banks, will want to see a business plan. A business plan details your goals and how you plan to achieve them. It should include information about your company, industry, objectives, strategies, and financial projections. Use this guide as a starting point for developing your business plan.

How Do You Qualify for a Commercial Loan?

Whether or not you qualify for a commercial loan ultimately comes down to your ability to repay the loan. Lenders will concentrate on several factors to determine your eligibility.

  • Time in Business – 1+ Year
  • Annual Revenue – $500,000+
  • Credit Score – 580+ credit score

A high credit score is critical, and it’s also important to demonstrate solid cash flow. A business plan can help outline your goals and strategy for success.

Make sure to explain why you need the funds, how much funds you’ll need, and how you plan to adapt should the worst-case scenario happen. Lenders want to see that you are organized, meticulous, and have all documents, statements, and information readily available.

You should also look over your commercial loan application and business plan several times before sending it in. Any mistakes, errors, or misrepresentations can delay the process or even hurt your ability to secure financing. Finally, stay away from factors that can hurt your ability to secure a commercial loan. This includes applying for too many loans all at once or leaving out critical documents.

How to Apply for a Commercial Loan

Applying for a commercial loan is as simple as filling out an application with a lender. Receiving the best terms, however, is a bit more complicated.

National Business Capital makes it easy to find and compare the commercial loan options you qualify for. Here’s what to expect.

  1. Complete Our Digital Application – Once you know that you meet our minimum eligibility requirements, you’ll fill out our digital application and upload the relevant documents through our secure file uploader.
  2. Tell Our Team About Your Business – A Business Finance Advisor will reach out to learn more about your business, circumstances, and goals. This way, we have exactly what we need to find the right offer for you.
  3. Our Team Applies On Behalf of Your Business – Don’t worry; We don’t apply you to 75+ lenders. Your Business Finance Advisor only applies you to lenders that are most likely to return favorable offers.
  4. You Review Your Options – After our team has your offers together, we’ll go over all of them in detail. We can help you select the best one using our years of industry experience.
  5. Finalize Your Offer and Receive Your Funds – We won’t push something that doesn’t work for your business. Once you’re completely comfortable with an offer, you’ll finalize the contract and receive the funds in your business bank account.

What Is the Minimum Down Payment for a Commercial Loan?

The type of lender and your financial history will play a role in whether or not you’re required to put up collateral or a minimum down payment. Most lenders want to know you’re motivated and incentivized to repay your loan.

In other words, they’re looking to ensure you have some skin in the game. As a result, they may require some form of collateral or a down payment.

The minimum down payment for commercial loans usually ranges between 0 – 20%. If you’re purchasing real estate, vehicles, or equipment – the products themselves will usually serve as collateral. Otherwise, you may have to put up other business assets or even your own personal assets. Not all lenders will enforce these requirements.

National maintains a database of over 75 different lenders, many of which offer commercial financing without collateral or down payments. You can secure funding fast – in hours, not weeks – without the hassle of creating a business plan or adapting to strict requirements. Plus, we have financing solutions available for all different kinds of credit scores.

Get in touch with a Business Financing Advisor and learn about solutions that can boost your business!

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