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How to Get a Commercial Loan

Last Updated June 24, 2020

Are you trying to get your business up and running, but funds are short? Or maybe you want to expand your current business but don't have the capital to do so. A commercial loan could be the answer to your situation. It's always wise to be cautious when taking out a loan, as there is always some risk involved, but a commercial loan can be an excellent tool for growing your business when used correctly.

Your purpose for taking out a commercial loan determines which loan you need. Are you looking for capital to fund your startup? Do you have unexpected business expenses you need to pay? Are you looking to stabilize your cash flow? Do you want to expand your current business?

There are a number of different types of commercial loans. Your specific situation dictates which type will work best for your needs.

Types of Loans

Term loans are the traditional type of loan and work similar to personal loans. The commercial version comes in three types:

Traditional-term loans: As business loans from banks, these loans are hard to qualify for but come with long repayment periods, low interest rates and large borrowing limits. SBA loans — backed by the Small Business Administration — fall into this category and are a good option when you're just starting out.
Medium-term loans: As the name implies, the terms are mid-length (around 1-5 years). Amounts tend to be within the $25,000 to $1 million dollar range, and the loans are a bit easier to qualify for, but the trade-off is a higher interest rate.
Short-term loans: These loans are good for sudden, unexpected expenses. You can usually only borrow up to about $250,000, but they're easy to qualify for and fund quickly. Even if your credit is less-than-stellar, you can usually get one of these loans, although the interest rate range is the highest.

Lines of credit are a great product when you need flexibility. They are revolving credit lines that work like a credit card. Once you've qualified for a line of credit (up to a certain limit), you can take out money as needed. As you pay down the balance, you're free to borrow the money again as necessary without having to reapply. These flexible options are great for stabilizing your cash flow.

Equipment financing loans are used to purchase equipment. You use the equipment as collateral for the loan itself, earning a lower interest rate and more favorable terms. Other specific types of loans include commercial vehicle loans and commercial real estate loans.

Types of Lenders

Various types of lenders offer commercial loans. Traditional banks, credit unions and other financial institutions are the most common. You can also find modern online options or even look into crowdsourcing your loan. Hard money lenders are expensive but can be another good option for purchasing real estate for your business.

The bottom line is that if you're having trouble with the bank because your credit score isn't amazing, you have other options. Commercial loan brokers can help explain your options.

Apply for the Loan

Once you determine your goal and the type of loan you want, all that's left is to apply. The process varies depending on the lender and type of loan. Be prepared to fill out a lot of paperwork, provide documents showing your business' cash flow and even pitch your business idea if you're just starting out.

Applying for a commercial loan can seem like a lot of work. However, it's worth it to ensure that your business succeeds.