Depending on your needs, you may choose different types of commercial financing. One option is a bank loan, which offers competitive rates but may require stringent eligibility requirements.
Another option is a line of credit, which is similar to a business credit card and can be accessed quickly. Many online lenders also offer lines of credit. Other options include down payments and collateral, which can reduce your lender’s risk and help you qualify for better terms.
1. Determine Your Needs
Lenders will focus on several factors when determining your business’s access to a commercial loan. These include your personal credit score, your business’s annual revenue and how long you’ve been in business.
Most lenders will require documentation including profit and loss statements, balance sheets, bank statements, tax returns and business licenses. Some lenders may also request a business plan.
Getting a commercial loan is an excellent way for your business to get the money it needs for growth without giving up any equity. However, it’s important to understand the terms of the loan before you apply. Typically, the lender will charge interest on the amount borrowed, which is a cost.
2. Research Lenders
There are many types of commercial loans, and they each have their own advantages and disadvantages. The loan you choose should be tailored to your business needs and goals. To make the best decision, it is crucial to understand the various terms, rates and fees associated with each type of financing.
For example, a business line of credit is an option that can provide quick access to funds. However, the qualification standards for this type of financing are generally more stringent than other commercial loan options.
Another good option for fast cash is a short-term commercial loan. These are typically available from online lenders and have less restrictive qualification requirements.
3. Gather Documentation
Depending on the lender, you might need to submit a variety of documents. Most lenders will want to see your business tax returns, financial statements and other documentation to prove your business is financially stable enough to pay back the loan.
You might also be asked for a cash flow forecast and information about your other debts. Some lenders might also ask about your personal credit score, which is different from your business credit score and can impact your ability to get financing.
Some loans, like equipment financing, may have specific requirements around the intended use of the funds, which is why it’s good to be prepared for anything that comes your way.
4. Fill Out an Application
Once you have a few lenders lined up, it’s time to start filling out the application. The exact details will vary depending on the lender and product, but most will require personal information (names, Social Security numbers and addresses) as well as business data like annual revenue and assets.
Some will also ask for a loan proposal, which is essentially a pitch outlining your objectives and how the funding will help you achieve them. Other requirements may include a down payment and/or collateral (like financial accounts, physical assets or commercial real estate). The lender will also check your credit score. Be careful not to apply for multiple loans, as each one will lower your score.
5. Meet With a Lender
Finding funding is never a one-size-fits-all proposition. That’s especially true when it comes to commercial loans. Getting the right financing solution for your business can help you reach your full potential.
Before you apply for a commercial loan, talk with your business advisors and lender to ensure you have all the documentation required to make the best decision for your business. Once you’re approved, your lender will provide you with a loan agreement that lays out the terms and conditions of your loan. These include your borrowing amount, repayment terms and fees, and other information.
6. Sign the Loan Agreement
Once you’ve shopped for commercial loans, undergone the underwriting process and received approval for a lender or multiple lenders, it’s time to work with the lender to close your loan. This typically involves reviewing the business loan agreement and asking any questions that you may have.
This document will include basic information such as the lender and borrower names, contact information and the amount of money being borrowed. It will also describe any collateral that you are providing, such as real estate, equipment or inventory. Additionally, the loan agreement will outline the repayment terms and interest rate. It will also specify any prepayment policy and late fees.
