Businesses need capital to carry out operations. From new businesses that need seed money to launch their services to established companies that need loans to expand their reach to newer markets, commercial funding is the backbone of businesses today. How do companies secure commercial loans from business financing services? This blog will explore how to secure commercial loans.
Step 1: Choose A Lender
Commercial loans can be secured through conventional institutes such as banks and credit unions or private lenders. Before you start preparing for a loan application, you have to decide which organization is more suitable for your business needs and financial status. Let’s discuss what you can expect when acquiring loans from different types of lenders.
Conventional Loans
Conventional loans are provided by official bodies like banks and credit unions with low-interest rates. These are well-established organizations that have years of experience lending to businesses. This is why businesses usually seek loans from these institutions.
However, their stringent loan qualifying requirements are exclusionary for new or small businesses that do not have exceptional financial records. For example, a business looking for real estate lending services needs a credit score of above 700 and a minimum operative period of 6 months. These requirements are hard to meet for new businesses.
Private Lenders
Private lenders are usually hard money lenders that have comparatively lenient terms than banks. The repayment terms for their loans are dependent on the lenders themselves, but there is a unanimous understanding that these loans are better if businesses need immediate and short-term funding.
Small Business Administration
SBA is a US government-backed organization that provides loans to small businesses. These loans are relatively easier to acquire than bank loans, given they cater to the needs of small businesses. However, SBA has stricter qualifying requirements than private lending services.
Step 2: Assess the Types Of Commercial Loans Available
Once you have chosen which lending body to work with, you will need to assess your financial status and goals to see what type of loan best fits your business plan. The options below are some of the most popular commercial loans.
Asset-Based Loans
Asset-based loans provide immediate financing for commercial projects with low-interest rates and adjustable repayment terms. The lender holds the business’s tangible assets as their security for repayment. A business asset can be property, equipment, inventory, or accounts receivable.
Asset-based lending services allow businesses to finance different types of projects with relatively more freedom than other types of financing. This is because the loan is a low-risk investment for the lender that is holding the business’ assets as collateral.
Mezzanine Financing
Mezzanine financing is a type of short-term loan businesses take out for specific purposes, such as for launching a new line of products.
This type of loan is similar to project financing in that it helps the business repay the loan with the cash flow generated through the project. However, it also secures the lender’s investment by warranting equity in the company in case of default. Mezzanine financing also is frequently used as commercial financing for acquisition purposes. In general, businesses that want immediate capital but do not want to give up equity opt for mezzanine financing.
Permanent Financing
In contrast with mezzanine loans, permanent financing is long-term loans that are usually used for construction and real estate purposes. They take 15 to 30 years to mature and are offered by both banks and private investors.
Since they are long-term loans, businesses can cut costs on applying for different loans. For example, construction and development loans are taken out to build property, and once it is built, a separate regular mortgage is taken out to pay for the property. Construction-to-permanent loans allow businesses to build property and pay the mortgage through one loan, cutting costs on closing deals. Businesses looking for low-interest loans with manageable periodic repayments can benefit from this type of loan.
Commercial Real Estate Loans
Real estate is one of the best long-term investments that a business can make. Commercial real estate lending services offer different types of loan programs for commercial real estate. Depending on the business’s financial status and needs, it can acquire self-storage, mixed-use, retail, commercial office property loans, etc. Banks and private lenders both offer such loans, albeit on different repayment terms.
It is recommended that business owners investigate the repayment terms of a lender thoroughly to ensure they support the business’ financial plans.
Step 3: Contact a Private Lending Service
The National Commercial Capital Fund is a private lending service that provides commercial loans to businesses in the industrial, hospitality, and retail sectors all over the United States. The company also offers short-term and bridge financing services, amongst others, for businesses looking to acquire equity in real estate. Their flexible repayment terms make them an attractive lender for clients looking for loan programs that favor their business plans. If you are a business owner looking for a reliable private lender, get in touch with them.
About The Author
Vana Kahn is a freelance writer who loves to write about business, the global economy, and technology. She is currently associated with the National Commercial Capital Fund.
