Wednesday, May 29, 2024

How To Get Commercial Loan Financing

Don't Miss

Other Types Of Commercial Finance

The Commercial Loan Process – HOW DOES IT WORK?

Commercial finance types are extremely varied. The first way to compare commercial finance products is by seeing whether or not they require security .

Secured commercial finance is backed by property or assets, which could range from commercial property and business equipment to the personal home of the business owner.

Alternatively, unsecured commercial finance doesnât require security, but because the risk is higher for the lender they will look closely at your and may require a personal guarantee.

Cons Of Commercial Real Estate Loans


  • High upfront cost
  • Loss of capital

There are, unfortunately, a number of drawbacks when it comes to commercial real estate loans. The first comes right at the start they are quite difficult to qualify for and take a significant amount of time to be approved. Youll need excellent credit to qualify for the best rates.

Because of economic fluctuations, they are also viewed as being riskier by lenders, which may lead to unfavorable terms depending on the economic climate and your financials.

Just like buying a home, buying commercial real estate also comes at a high upfront cost and loss of liquidity, and possibly even a future loss of capital if your terms include a concluding balloon payment.

Who Needs A Commercial Mortgage Loan Do I Need One

While some businesses are successful at operating from home, the majority of businesses need a storefront or an office to welcome customers and depending on your industry, you may need a warehouse to store all your inventory. Beyond having property to operate from or store your merchandise in, owning your own commercial property future-proofs your business by giving it access to equity as real estate prices appreciate over time.

Don’t Miss: What Is The Best Student Loan Servicer

Do You Make Enough Money

Many lenders require a minimum annual revenue, which can range anywhere from $50,000 to $250,000. Calculate your revenue and find out the minimum a given lender requires before you apply.

If your revenue isn’t high enough, don’t count yourself out just yet. Consider looking into short-term business loans, SBA microloans or even equipment financing.

  • You lack time in business.

  • You need funding quickly.

Online lenders provide small-business loans and lines of credit from about $1,000 to $5 million. The average annual percentage rate on these loans ranges from 6% to 99%, depending on the lender, the type and size of the loan, the length of the repayment term, the borrowers credit history and whether collateral is required.

These lenders rarely have APRs as low as those at traditional banks, but approval rates are higher and funding is faster than with banks as fast as 12 hours.

Navigating Commercial Real Estate Loan Terms

How To Turn A Diagnostic Lab Into A Successful Business ...

One of the least-understood aspects of commercial real estate borrowing is the repayment term. Far too often we find that business owners inexperienced in the world of commercial real estate lending are eager to jump on any offer extended to them.

You do need to pay attention to repayment terms to understand the effective cost of the loan.

Generally, commercial real estate loans are offered on long-term contracts with repayment terms ranging between 10 and 30 years. However, some short-term real estate loans exist with repayment terms of 5 years or less. The downside, though, is that these are typically hard money loans with much higher interest rates.

Be sure you understand your interest rates, fees and terms. Ensure you get the right loan for you by clearly understanding what your loan will cost you.

Read Also: Can You Get Personal Loan From Bank

Prepare The Required Documents

Processing paperwork for a commercial mortgage application is often a slow and taxing process. Lenders require many legal documents that contain extensive financial information.

Get ready with the following documents when you apply for a commercial mortgage:

  • Income tax returns up to 5 years
  • Third-party appraisal on the property
  • Proof of citizenship
  • Your business credit report
  • State certification as a limited liability entity
  • Books accounting the last 5 years of your business, or since it started
  • Business plan states how the property will be used, details the strengths of the business, etc.

How Long Does the Processing Take?

It typically takes around 93 days or 3 months from application to closing. This is the median time for most commercial loan applications. For construction loans, the processing time can even take up to 6 months. And compared to residential mortgages, commercial loans take a lot longer to close.

Learn How Banks Assess You

Before you begin the loan application process, youd be saving plenty of time and energy if you spend some of it in understanding how financial institutions and government bodies in India are going to be evaluating your loan application.

Whether it is a bank that is providing you with a loan or a government body that has set aside a specific scheme for small businesses, startups, or entrepreneurs, these lenders are ultimately going to assess whether your venture will bring them a certain amount of profit or not.

They will also consider whether your financial situation will allow you to make payments in a scheduled or periodic manner. Heres a brief look at what lenders will be looking into when you apply for a loan:

When lenders assess the creditworthiness of a small business, theyre not only going to look into an entitys business credit profile but will also give equal focus to their personal credit score.

This is done to ensure that your enterprise can make daily, weekly, monthly, or quarterly payments , taking into account how the entity has made payments in the past.

Banks inspect the extent of your credit history to evaluate your eligibility for a business loan. Financial bodies could further look into a detailed account of your credit usage that is handed over to them by credit bureaus as well as other suppliers.


Read Also: How To Transfer Car Loan To Another Person

First Things First Get To Know Your Business

As a small business owner, youre probably goal-oriented you yearn to grow, build, expand and allow more and more people to enjoy the products and services you already love. And thats only part of process. Here are a few hot-button items to get started on how to get a small business loan:

  • You should determine why your business may need a small business loan If you are looking to expand your retail space, or are looking to cover payroll from last month, its best to have those needs in mind before applying.
  • Consider how much your business needs and if your business can afford it just because your business can receive a high-dollar loan, doesnt mean it should take a high-dollar loan. Taking a comprehensive look at what your small business can afford to pay back is the best bet in ensuring youll have on-time payments without worrying about recourse.
  • Determine how much financing your business needs doing your research beforehand can help your loan advisor understand what youll be financing. If youre looking to grow your product offering, or want to make some much-needed upgrades to your storefront, its best to have a figure in mind when getting a small business loan.
  • How Lenders Determine Down Payments

    How to Buy Commercial Property with 100% Financing!

    Obtaining a business loan with no money down can prove difficult because it doesnt offer a lender as much protection on their investment. Even borrowers with the best credentials are asked to contribute cash to secure financing.

    How much of a down payment you need for a business loan will rely on a few factors:

    You May Like: How To Apply Loan In Sss

    How Commercial Loans Work

    Most business owners apply for a commercial loan so they can get to the next stage in their business. This short-term funding helps with the operations of the company on either a large or small scale. Loans can be used for nearly anything from the purchase of a commercial building to funds needed to pay a surge of contract employees.

    Once a business owner has identified that their company is in need of a loan to continue operations, they usually have to approach the financial institution with collateral. This collateral will end up becoming the bank’s property if the business defaults on its loan or goes bankrupt.

    When making a lending decision and signing a loan rate with terms, the financial institution may look at a number of factors, including:

    Debt Service Coverage Ratio

    DSCR estimates your companys available cash flow. This is essentially the money that pays for your companys current debt obligations. DSCR is calculated by dividing the annual total debt service with your annual net operating income . The total annual debt service is the amount borrowers use to pay the principal and interest of a commercial mortgage.

    Preferred DSCR for Commercial Loans

    A good DSCR range for companies is between 1.15-1.35. Most commercial lenders require a DSCR of 1.25 for approval.

    Also Check: What Is The Commitment Fee On Mortgage Loan

    Your Business Your Way

    When getting a small business loan, its important to consider all factors in making your funding decision. Whether a small business loan is your first choice because of the speed and ease of access to capital, or you want to explore your line of credit options, small business owners like you can make informed decisions on your businesss financing future.

    Your working capital can work even harder for you if you take the necessary precautions when deciding which financing route to take, and what your business should do based on your businesss current profitability and revenue situation.

    If you have any financing questions or would like to speak to a business advisor, speak to one of our expert representatives at Rapid Finance today: -252-0827.

    How To Improve Your Chances Of Getting Approved

    Debt consolidation loans: 5 tips to get approved for one

    Business owners with poor credit or new businesses may face more obstacles when applying for a commercial real estate loan. Some things you can do to help boost your chances of getting improved include:

    • Paying off existing debt and taking other steps to improve your credit scores
    • Pledging additional collateral if you have it
    • Adding an investor or cosigner
    • Agreeing to pay a larger down payment and/or higher interest rate
    • Selecting a less expensive property

    Read Also: What Does Jumbo Loan Mean

    How To Get A Land Loan

    If youd like to get a land loan, its typically easiest to do so from a community bank or credit union located near the land youre looking to buy. But depending on what you intend to use the land for, there can be other loan options available to borrowers. For example, if youre planning to build a primary residence in a rural area, you can apply for USDA loans. USDA loans and USDA construction loans are designed for low to moderate income families and have a repayment term of 2 years. They have low interest rates, and depending on the situation, borrowers may qualify for a loan with no down payment. On the other hand, if youd like to use a land loan for commercial purposes, you can apply for SBA 504 loans. SBA loans are provided by the U.S. Small Business Administration and designed for businessowners looking for funds to help contribute to the cost of the land purchase. The interest rates and terms of SBA loans can vary, but the repayment period typically lasts 10 20 years.

    The right home is out there.

    Find it online at

    Learn How To Get A Small Business Loan With Help From Rapid Finance

    Obtaining financing for your small business can feel overwhelming when there are so many options to choose from. To help set you and your business up for success, weve put together a guide on how to get a small business loan in just a few steps.

    An introduction in how to get a small business loan

    Small businesses are the backbone of America. From mom-and-pop storefronts, to restaurants, barbershops, retail and convenience stores, and startups, theres always a small business nearby. And as a small business owner, there are a lot of things that must come together to make sure your business is a success most importantly, capital.

    Sometimes working capital is needed to expand, to consolidate debt, to cover payroll, or to simply continue operations if business temporarily slows.

    But for most small business owners, they can have a hard time procuring capital from external sources because they dont know where to start, and what kind of financing is available. Thats why weve put together a comprehensive overview of how to get a small business loan for small business owners just like you.

    Recommended Reading: How To Calculate Vehicle Loan Payment

    Decide Which Loan Type And Lender Is Right For Your Business

    Now that youve completed the first step, you know why you need financing. The next step to figure out how to get a commercial loan is deciding which loan type and lender is best for your business.

    This being said, although commercial financing has been traditionally difficult for small businesses to access, the rise of alternative lending has changed the playing fieldâopening up many more options for all kinds of businesses.

    With this in mind, here are some of the most popular business loan solutions you might consider:

    Determine Your Chances Of Getting Approved

    How To Get Loan Approval On Commercial Real Estate

    Although it is natural to assume that when lending institutions pre-qualify you for a loan based purely on standard information youve provided to them, it doesnt necessarily mean that your actual loan application process is complete.

    The fact is, the approval for your loan is far from over. Without an exhaustive inquiry of your credit score, its history, and your credit report in general, there is very little chance of your loan being approved.

    As such, your Indian business needs to sift through your initial loan applications in a manner wherein it reaches only the likeliest of lenders. Look into your credit score and assess whether they fall between the desired loan bracket for it to be deemed acceptable by traditional financial institutions.

    Anything below or between 680 and 700 is too low of a credit score for banks to consider the application. If a bank does accept such a low credit score, it is only in exchange for sky high-interest rates. Therefore, it is incumbent for entities to weigh the odds before they end up spending a lot of time and energy on the loan application.

    Read Also: How To Apply For Student Loan For Masters

    How To Get A Commercial Truck Loan

    • Banks Editorial Team

    Commercial truck loans allow business owners to purchase commercial trucks, and they work similarly to equipment financing loans.

    If you are a business owner looking for commercial truck financing, this guide can help you find the right commercial truck loan for your needs to start or upgrade your business vehicle fleet.

    Know Your Financial Limits

    Know your limits for finance and your ability to repay any money you borrow. Work out:

    • if you need the money up-front or on a needs basis
    • what maximum repayment you can afford
    • what your is
    • what assets you have to offer if you need collateral
    • who will be willing to guarantee your loan if you need a guarantor
    • how much equity you have
    • what maximum percentage share of your business you are willing to offer to investors.

    Recommended Reading: How Can I Get An Auto Loan With No Credit

    Commercial Loans For Small Businesses

    Many businesses, large and small, rely on commercial loans to fuel growth or fund other business initiatives like purchasing equipment, buying inventory, or other day-to-day business activities.Fortunately, there are many options available today for the small business willing to look outside the bank and other traditional sources for commercial loans.

    Many of the options that were once considered alternative are now considered mainstream and even the first choice for other small business owners just like you who are looking for a small business loan.

    Business Loan For Women

    Commercial Lending: Everything You Need to Know about ...

    Certain financial institutions provide loans specifically for women entrepreneurs. As mentioned earlier, the Indian government also has schemes set in place solely to support and encourage businesswomen. These loans are provided to organisations running small and medium-sized enterprises.

    The biggest benefit of this type of loan is the fact that the loan amount is quite flexible by default, such that women entrepreneurs can acquire funds for their startups at discounted rates and with the added advantage of going through a swift loan process.

    You May Like: Can I Roll My Closing Costs Into My Va Loan

    Where To Get A Commercial Real Estate Loan

    If you’re wondering where to get a commercial building loan, there are multiple sources you can obtain one from. You’ll have to compare commercial loan rates from various lenders to find out which one works best for you.

    The following is a summary of the pros and cons of working with certain types of lenders:

    For Example You Can Use A Loan To Finance:

    • commercial vehicles
    • computer or telecommunications equipment and software
    • production equipment

    Interest rates are determined by your financial institution and may be variable or fixed.

    • Variable: The maximum chargeable is the lender’s prime lending rate plus 3%.
    • Fixed: The maximum chargeable is the lender’s single family residential mortgage rate for the term of the loan plus 3%.

    A registration fee of 2% of the total amount loaned under the program must also be paid by the borrower to the lender. It can be financed as part of the loan.

    Also Check: How Do You Get Your Student Loan Account Number

    Occupying More Than Half Of The Property

    A small business is required to occupy 51 percent of the property or more than half of the premises. If you are unable to meet this criteria, you cannot qualify for a commercial mortgage. You should consider applying for an investment property loan instead.

    Investment Property Loans

    Investment property loans are appropriate for rental properties. Borrowers use them to buy commercial property and rent them out for extra profit. Investment property loans are also used by house flippers who renovate and sell houses in the market.

    More articles

    Popular Articles