A commercial loan is arranged between a firm and a bank. These are typically short-term loans, but the bank may allow for extensions and renewals if necessary. Ready to take out a commercial loan? Here’s a guide on how taking out a commercial loan works.
How to Get a Commercial Loan
1. Figure out How You’ll Use The Loan
The first step is to consider why you need a loan and how you intend to put the money to use. For instance, are you planning to buy a new office building? Then you need to identify the property you want. Are you renovating your current office space? Have a clear vision of the end product.
This data is essential for two reasons: first, to determine the type of commercial loan you require, and second, to secure financing for that loan.
2. Choose a Type of Commercial Loan
If you have a clear idea of how you’ll use the money, you’ll have no trouble determining the best commercial loan type for your situation.
In most cases, you’ll choose from the following types of commercial loans:
- Hard money loan: This loan has a higher interest rate and shorter terms and can only be gotten from private lenders.
- Refinance loan: In many cases, you can reduce your monthly payments and lock in a lower interest rate by refinancing.
- Purchase loan: Amounts are large, and repayment terms are long
- Construction loan: It has a shorter repayment term; most people get this loan to build property.
3. Finding the Right Lender
Commercial lenders look at the following factors when evaluating creditworthiness.
- Debt-to-income ratio
- Business credit score
- Personal credit history
- Annual revenue
- Coverage ratio
Banks may also look at the following factors for the property:
- Type of property
- Purchase price
- Loan-to-value ratio
- Rental income (if applicable)
- Operating statements
4. Get the Loan Application Ready
There will be variations in the application procedure from one lender to the next. However, in most cases, you’ll need to provide personal and business details and information about the property by filling out numerous forms.
After that, you’ll need to submit supporting documentation like:
- Legal documentation
- Business plan
- Personal and business tax returns
- Business balance sheet
5. Close on the Loan
Once you get approval, you can close on your commercial loan and move on with your commercial project.
Bottom Line
Every entrepreneur’s ultimate goal is obtaining the capital necessary to expand their business; commercial loans can make that a reality. Avoiding commercial loans is a mistake, as they can provide the funds needed to invest in things like machinery, real estate, and employees that will help your company grow. Contact Critical Capital Solutions today to get the funding you need.
