Home Finance What is a commercial loan and how can I get one?

What is a commercial loan and how can I get one?

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commercial loan

Loans can help new or established companies take a new step. That said, it is essential that each applicant fully understands what a commercial loan is and how to choose it before signing on the dotted line.

What is a commercial loan?

A commercial loan is a sum of money lent by a bank, a credit union, an alternative lender or a government agency and paid back regularly until the amount of the loan is paid in full.

There are three options for the terms of repayment of loans: short-term, medium-term and long-term. Borrowers repay the principal amount lent to them and the interest (the premium paid to the lender for the lump sum amount received by the borrower).

Loan amounts, repayment terms and interest rates vary according to the type of financing, financial institution and eligibility criteria. The lender determines these conditions before paying a sum of money.

Business loans are best suited to significant business-related expenses. Here are some common uses of a commercial loan:

  • Purchase of land or real estate
  • Intangible assets and working capital
  • Purchase of stocks
  • Rental improvements
  • Purchase, improvement or repair of equipment
  • Renovations
  • Starting costs

Current types of commercial loans

Here are some of the most common types of loans available for companies.

  • Start-up loan

Start-up loans are intended for new businesses that meet specific eligibility criteria, such as a good credit history and strong sales potential.

  • Loan of working capital

A working capital loan is used to help companies finance their daily operations.

  • Loan for equipment financing

Loans for business equipment are used to buy, upgrade or improve equipment.

  • Financing of purchase orders

Purchase order financing is a type of loan that companies can use to purchase the materials necessary for the execution of contracts or orders in progress.

  • Ready to acquire a business

A loan for the acquisition of a company is used to buy another company, often a competing company.

  • Commercial real estate loan

A commercial real estate loan is a long-term loan used to buy commercial real estate. This type of commercial loan is suitable for upgrading or buying new real estate for companies.

How to apply for a small business loan

Applying for a commercial loan is often a long and intimidating process for many small business owners. However, by following these four steps, you can save a lot of time and avoid frustration.

  1. Understand why you need a commercial loan

If this step may seem obvious, it is essential to understand why you need a commercial loan.

As indicated above, there are many loans and borrowing products for companies, and some loans are better suited to specific objectives.

Understanding why you need a loan will also help you prepare the appropriate documents before applying and understand if a loan is the best product for your financing needs, because commercial credit cards and commercial lines of credit may be more appropriate.

  1. Prepare the required documents

If your company is already registered with the government, you can start preparing the necessary documents.

Among the most common documents are proof of a bank account in your name or in the name of your company, a personal credit rating and a commercial credit rating.

You will also need financial statements or tax returns for the last two years, as well as financial projections for the next two years.

Some lenders may require a business plan to understand why your company needs financing.

  1. Compare the loans

Now that your documents are in order, you can start comparing the best loan rates offered to companies.

When comparing, take into account the duration of the loan, the interest rate, the percentage that the financial institution will finance, its flexibility and the guarantees it requires.

When you find a loan that meets your business needs, read the fine print and understand the requirements and conditions of signing the loan.

  1. Ask for a loan

After submitting your loan application, a representative will contact you to tell you if the loan has been approved or refused.