As a small business owner, you know that growing requires capital—and that’s where commercial lending comes in.

Commercial or business loans are installment loans created to meet the needs of business owners like you. Whether you’re a new business just starting out, or you’ve been in business for a while and need to expand, it’s important to know the basics of the commercial lending process.

The following blog post will walk you through the process of obtaining a commercial loan, understanding the various types of commercial loans and which is best for you, and assessing the benefits and risks to ensure your commercial loan experience positively impacts the trajectory of your business.

What is a Commercial or Business Loan?

A commercial loan is a short-term funding arrangement made between a business and a financial institution such as a bank. Small businesses often use commercial loans to finance the purchase of fixed assets such as real estate or machinery—or as working capital to cover operational costs should the business experience financial setbacks.

Commercial loans are repaid over an agreed-upon period of time and typically carry a fixed or variable interest rate.

The process for obtaining a commercial loan can vary based on your specific needs. For example, you may be a new business in need of debt financing as opposed to a veteran company looking to purchase another business.

Depending on your needs, a loan advisor will be able to direct you towards the best loan options for your specific business needs, which can include any of the following:

Small Business Administration Loan

The small business administration (SBA) is a federal government agency that provides financial assistance to small businesses. One of the ways the SBA helps small businesses is by guaranteeing loans made by traditional lenders.

If you’re a small business owner, you may be able to get an SBA-guaranteed loan to help you start or expand your business. While these loans are often made by banks or credit unions, the SBA guarantees a portion of the loan which means the lender is less likely to lose money should you default on the loan.

Real Estate Loan

Real estate loans are typically made by banks or other financial institutions and can be used for purchasing new investment properties or upgrading current properties. If you invest in real estate, this can be a great option for increasing the amount of passive income you receive from rental and commercial properties.

Corporate Line of Credit

A corporate line of credit is a type of business loan that allows small businesses to borrow money up to a certain limit. This limit is usually determined by the lender based on the company’s financial history and ability to repay the loan. Businesses can then use this line of credit to cover expenses such as inventory, payroll, or other unexpected costs.

One of the main advantages of a corporate line of credit is that it can provide small businesses with flexibility and access to funds when they need it. This type of loan can also help businesses manage cash flow more effectively.

Should you choose to invest in a corporate line of credit, you may be asked to provide financial information such as tax returns, collateral, balance sheets, and income statements as well as a business plan and detailed explanation of how you will use the funds.

Tips for Making It Easier to Be Approved for a Commercial Loan

If you’re a small business owner looking for a commercial loan, here’s how to make the process more efficient.

Know Your Reasons for Borrowing

The most important question you can ask yourself is why you’re borrowing money. What will the loan be used for and what are your ultimate goals? Answering this question will help you understand which type of loan is best for you.

Shop Around for the Best Lending Rates

This is where you can either save money or overspend. Interest rates on commercial loans can vary greatly from lender to lender which makes it imperative to compare rates before agreeing to a loan agreement. Keep in mind that the lowest interest rate isn’t always the best option. Some lenders may offer a lower rate but charge higher fees making the loan more expensive overall.

Understand the Fees Associated with Your Loan

When you’re taking out a loan, there will be various fees associated with it. These can include origination fees, closing costs, and appraisal fees. Make sure you understand all of the fees before signing any loan documents. Don’t be afraid to ask questions and seek advice from other business owners and lenders.

Organize All of Your Documentation

Before you apply for a loan, it’s important to have all of your documentation in order. This includes financial statements, tax returns, and business plans. Lenders will want to see these documents in order to get a better understanding of your business and having them organized ahead of time can help you get funded faster.

Risks for Getting a Commercial or Business Loan

There are a few things you should keep in mind when choosing a commercial lender. First, it is always important to read (and re-read) the fine print as lending guidelines can vary. Be sure you understand all of the terms and conditions before signing any loan application.

It is also a good idea to speak with a small business accountant or financial advisor to get more information about which loan is best for your business.

Conclusion

By having a clear understanding of how a commercial loan could help support your business’s growth, and knowing the advantages and risks associated with commercial lending, you can make a more informed decision about what’s best for your business.

If you’re ready to explore your options, connect with one of our expert bankers and we’ll help you choose the right loan for you. Let’s connect.