How to Get a Commercial Business Loan in 9 Simple Steps – If you’ve ever wanted to start your own business, but felt that it was impossible because of the cost, then you might have considered taking out a commercial business loan.
Commercial business loans are specifically designed to help small businesses like yours get off the ground and operate in the real world, and they’re available through a variety of different financial institutions, including banks, credit unions, and commercial lenders.
In order to get started with your search for the right commercial business loan, follow this eight-step guide to finding and applying for your commercial business loan today!
What’s A Commercial Business Loan
Small business loans come in many shapes and sizes, from regular business loans to SBA loans and even microloans. Each type of loan is suited for different businesses and different needs, so it’s important to know what all your options are before you start applying.
If you have an established small business with plenty of collateral and cash flow, most banks will be happy to lend you a few thousand dollars. But if you’re just starting out, securing funding can be more difficult without verifiable proof that your company will make money (and back its debt).
That’s where a commercial business loan comes into play. It’s specifically designed for small businesses that need capital but don’t have anything to offer as collateral.
These types of loans are often easier to get than other forms of financing because they don’t require any assets or personal guarantees—just a solid business plan and some financial statements showing steady income.
Even though these loans aren’t as common as some others, there are still several ways you can go about getting one: If you want to learn how to get a commercial business loan for your company.
Types of Commercial Business Loans
Before you apply for your commercial business loan, you’ll need to know what types of loans you have access to. When it comes down to it, there are three kinds of commercial business loans: asset-based, purpose, and project.
Asset-based Business Loan
With an asset-based loan, a lender looks at your company’s financial statements and determines how much they’re willing to lend based on their perception of its worth.
Purpose Business Loans
With purpose loans or gap financing, lenders focus more on existing credit lines that companies have built up with them; these are good options if you already have cash flow coming in. Purpose financing can also come from government sources such as SBA or local lenders who offer competitive interest rates but less flexibility than other options available.
Project financing Business Loans
A project financing loan is used when you’re looking to make a one-time purchase that doesn’t fall into any other category. If you want to purchase equipment, land, or buildings for example, then project financing is probably best for you.
The type of loan that works best will depend on your situation and goals so make sure to do some research before making any decisions about which option is right for you.
In addition to figuring out what kind of commercial business loan you should get, you should also think about which type of institution is most likely to give you a favorable response. For example, banks often prefer to lend money to businesses that have been around for at least two years while venture capital firms may be more inclined toward newer startups.
In order to increase your chances of getting approved for a particular type of loan, speak with people in similar situations who’ve had success getting loans through specific institutions.
They may be able to provide valuable information regarding which factors matter most when it comes time for review and exactly how large an investment fund needs to be before applying becomes worthwhile.
Steps To Apply for Commercial Business Loan
There are two ways you can go about getting a commercial business loan: You can take out a small business loan from your local bank or credit union, or you can apply for one through SBA by following the steps below.
Step 1. Know your budget
You should know how much money you want to borrow and how much you’ll need for startup costs. You also need to decide if you want an unsecured loan, which is just like taking out a personal loan, or if you prefer secured loans, which are backed by collateral (e.g., your business).
Be sure that whatever terms you choose match your overall financial picture. Generally speaking, obtaining any loan of $500K or more will be considered commercial-sized financing.
Anything below that is likely considered more personal than it is business, so be aware of that distinction when approaching your local bank or credit union for funds.
Step 2. Research your loan options
Even if you’ve decided that you want to go with a traditional loan, your options are pretty broad. There are federal loans, state loans, private business loans, and even local government programs available for small-business owners looking for commercial loans.
This step may take time, but it will help ensure you get exactly what you need from your lender down the road. A lot of businesses tend to forget about preparing when it comes to applying for a loan until they really need one.
That’s not good! When applying for any loan—whether it’s personal or commercial—be organized and make sure you include all relevant information. Missing information or typos can get your application turned down before it even has a chance.
Step 3. Prepare your business plan and other documents
The bank will want to see that you are serious about your business idea. You’ll need an executive summary and detailed business plan, along with financial statements from previous businesses (if any), tax returns, employment records, and credit reports.
If your business is still very small and new, banks may ask you for audited financials. This can all be very time-consuming and expensive, so it’s better if you can show that there are already investors interested in your project, who have already provided start-up capital or committed debt financing.
Because many small-business owners don’t understand how banks assess risk or what documents lenders want to see, our advice is to hire a professional accountant who specializes in commercial lending to help prepare all of these documents.
Step 4. Get your financials ready
Before you apply for a loan, it’s important to have your financials on hand. Things such as personal credit history, your business’s cash flow, and profit and loss statements are just some of the items that lenders will need before they can move forward with your loan request.
While some of these documents you may be able to prepare yourself, others you may have to get from third parties like banks or accountants. Make sure these things are all prepared before you start applying for loans.
Step 5. Find a Commerical Business Loan Lender
It’s no secret banks are selective about which business loans they approve. To increase your chances of getting approved for a commercial business loan or an SBA loan, find a local lender who specializes in SBA loans and has many years of experience working with small businesses.
These lenders will be able to explain how you can qualify for a commercial loan or an SBA loan, how much money you can borrow, and what your total repayment terms will look like.
They’ll also be able to help you get through any regulatory hurdles that might pop up during or after your application process. They even may have access to additional financing options if your business needs exceed what an SBA loan can provide.
Step 6. Commercial Business Loan Application
The first step to applying for a commercial business loan is to visit your bank and fill out an application form for the business loan. It’s important that you get pre-approved for as large of a loan as possible before applying so that banks know you are serious about starting or expanding your business, and then negotiate down to something reasonable after they offer it.
Step 7. Negotiate terms with the lender
The next step in how to get a commercial business loan is negotiating terms with your lender. Terms like interest rate and loan term should be negotiated during your lender’s appraisal of your business plan.
Additionally, you may want to negotiate for co-signers or other down payment options. Negotiating terms with a lender allows you some wiggle room when deciding how much money you need, as well as what type of repayment schedule works best for you.
Step 8. Close the Commercial Business Loan Deal
Last but not least, you have to close on your commercial business loan. This step is easy: If everything is lined up and you’ve met all of your financial objectives, it should just be a matter of filling out some paperwork and paying off your creditors!
Step 9. Maintain your relationship with your lender
After getting your commercial business loan, continue working with your lender. Meet with them and discuss financial data so that you can stay up-to-date on how to avoid defaulting on your loan.
If you’ve been approved for a commercial business loan, congratulations! Keep in mind that loans aren’t free money—you should take it as seriously as an investor would, especially because when you own your own business, that’s exactly what you are—an investor.
So get off to a great start by researching how to get a commercial business loan before jumping into anything and always maintain your relationship with your lender!