Commercial Term Loan & Lending
A commercial term loan is a type of loan granted to businesses by a financial or lending institution. Commercial term loans have fixed repayment schedules and can be used for a variety of purposes.
Many businesses, especially smaller enterprises, may not have the means to finance a project or large-scale purchase upfront. Commercial term lending provides a way for entrepreneurs to access much-needed capital. These loans can be used in a variety of different ways, such as buying new equipment, expanding operations, or even purchasing real estate.
In this guide, we’ll explore the basics of commercial term loans, including how they work, who they are best suited for, as well as how to secure the best commercial term loan rates.
How Does a Commercial Term Loan Work?
Commercial term loans are fixed-rate loans provided to businesses to help them finance different projects and access the capital they need.
These are typically offered by banks and online lenders. The process of applying for and securing a commercial term loan is not unlike obtaining other types of business financing. After submitting an application, either online or in person, lenders will review your credentials. This will include your business’s revenue, tax returns, credit score, and more.
Unlike other types of financing, such as lines of credit, commercial term loans have a set repayment period and fixed interest rate. This makes it easier for businesses to plan and budget for future expenses.
Businesses can use commercial term funding for a wide range of expenses. This includes various investments, from buying new equipment, expanding a facility, or launching new products. These loans can even be used to refinance existing debt or acquire a competitor. Some lenders, especially banks, may require prior approval. However, online lenders tend to be more lenient.
Benefits of Acquiring Commercial Term Loans
Commercial term loans are popular with businesses and offer a number of benefits to entrepreneurs. Check out the most noteworthy.
- Capital Influx – By obtaining outside financing, you’ll have more flexibility and put less strain on your business’s cash flow. When a crisis hits, you won’t have to automatically resort to laying off employees or cutting back on operations. Instead, you’ll be able to stay focused on long-term growth prospects.
- Predictable Repayment Schedule – You’ll know exactly how long you’ll be in debt and when each loan payment is due. With this knowledge in hand, you’ll be in a stronger position to map out your future expenses and plan out your finances.
- Opportunity to Build Credit – By making regular payments on a commercial term loan, businesses can demonstrate their ability to manage debt responsibly, which can help them improve creditworthiness and make it easier to obtain financing in the future.
- Long-Term Financing – Commercial term loans allow businesses to repay their loan over an extended period of time, ranging from several years up to 25. This way, you’re able to spread out the cost of major investments – making it easier on your cash flow.
- Tax Benefits – The interest paid on commercial term loans is often tax-deductible. Businesses may be able to reduce their overall tax liability and lower their tax bill with this type of financing.
Understanding Commercial Term Loan Details
Loan Amount
Between $10,000 to $10 million
Interest Rates
Depend on your business, the lender you’re working with, and the economic conditions surrounding your transaction
Fees
Depends on the lender you’re working with. Make sure to ask about potential fees before signing your contract
Repayment Period
Between one to 25 years
Who Needs a Commercial Term Loan?
Deciding whether a commercial term loan is the right choice? Take a look at some of the most common reasons businesses seek out this funding type.
- Businesses in Capital-Intensive Industries – Commercial term loans are especially popular with businesses that require substantial upfront investments in equipment or other heavy assets. This includes businesses in manufacturing, construction, or healthcare industries. With commercial term lending, your business is able to obtain necessary assets without draining working capital reserves.
- Growth-Oriented Businesses – Businesses looking to take on growth projects and expand are in a particularly strong position to benefit from commercial term lending. By obtaining a business loan, you’ll have the means to invest in marketing initiatives, new locations, or even develop new products. You’ll also be able to jump on opportunities now – while paying back your loan with the profits from your investment.
- Businesses Looking to Acquire Another Business – Business funding can provide your firm with the finances it needs to acquire a competitor and expand its market. By obtaining the capital you need upfront, you’ll be able to move forward with the acquisition and pay back your debt over time.
- Businesses Considering Refinancing – Whether you’re struggling with high-interest-rate debt or you’re looking to consolidate multiple debts into a single loan, obtaining a commercial term loan can offer a solution. By taking out a commercial term loan, preferably at a lower interest rate, you’ll be able to combine your debt into a single manageable payment.
- Businesses With Long-Term Plans – Commercial term loans are ideal for businesses that have a specific project in mind requiring a large amount of capital over the next several years. Whether it’s real estate purchases, financing ongoing developments, or another goal – financing gives you the means to implement strategic initiatives.
How Do You Qualify for Commercial Term Loan?
When it comes to qualifying for a commercial term loan, lenders will focus on three key areas – credit score, revenue, and business history. Here’s a breakdown of what you’ll need to be eligible for this type of financing.
- 580 credit score
- 120k in annual revenue
- Minimum one year of business history
580 Credit Score
Although you may be able to qualify for a business loan with less-than-perfect credit, you’ll need a score of at least 580 for the best chances of approval. For the best commercial term rates and terms, you’ll want to maintain a credit score of at least 680 or more.
120k in Annual Business Revenue
Lenders will consider your business’s revenue as an important indicator of your ability to repay your loan. Having strong revenue and profit margins may even help your business qualify for higher funding amounts.
One Year of Business History
Startups or businesses with limited revenue history may find it difficult to obtain a commercial term loan since they tend to lack the financial stability and credit history that lenders look for. Businesses with less than one year of history may need to rely on other funding types instead, such as credit cards or secured loans.
Steps to Take When Applying for a Commercial Term Loan
National Business Capital simplifies the process of applying for a commercial term loan into three steps:
Step 1: Compare Lenders
The first and most important step in the process entails reviewing and comparing different lenders to find the one offering the best terms and rates. You could spend hours researching and contacting various lenders. However, a much more efficient approach is to use a B2B financing platform like National.
National Business Capital connects you with over 75 different lenders with a single application. It’s the most straightforward way to compare and select the best funding solution.
Step 2: Gather Your Documents and Submit an Application
National’s online application takes only one minute. Simply upload your business documents – such as business tax returns, business bank statements, etc. – into National’s secured digital portal. From there, you’ll be able to monitor your application status and get notified once you have a loan match
Step 3: Review and Accept Your Loan
National compiles your personalized loan offers to help you select the best fit. You can compare commercial term loan rates and terms to select the lending product that suits you best.
After you select a loan offer, your funds should be deposited within the next few business days. National is known for offering fast funding times, with some deposits with turnaround times as fast as 24 hours.
Frequently Asked Questions
Is it hard to get a commercial term loan?
Not necessarily. However, you will need to have at least a credit score of 580, one year of business history, and a minimum of 120k in annual revenue to qualify.
Are there any consequences of defaulting on a commercial term loan?
Defaulting on a commercial term loan is never a good idea since it can have numerous consequences. Your credit score will take a hit and you may be subject to personal liability. It’s possible for lenders to go after your personal assets and even take legal action against your business.
What are the documents needed to take a commercial term loan?
At the very least, you’ll need to present a government-issued ID, business tax returns, business bank statements, and proof of ownership.
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