by Bernadette Starzee
Looking for a commercial loan? There are several types, which may or may not work, depending on how you plan to use the funds.
Term loans are a very common, general-purpose loan. A company may obtain one of these to finance equipment purchases, expand its business or make an acquisition. Term loans, which may have a variable or a fixed rate, are paid back monthly over a set term, such as five years.
Unlike term loans, lines of credit are typically used for short- term financing. Rather than giving you a lump sum upfront, the financial institution will allow you to borrow up to a certain amount of money as you need it. When you need funds, you essentially write a check, and you pay it back as you can. Naturally, interest accumulates, so repaying it quickly is advisable. Lines of credit are commonly used to protect a business against short-term cash- flow problems and are not intended for long-term financing of major purchases.
Equipment or vehicle loans may be easier to obtain than other types of business loans, since the equipment or vehicle serves as direct collateral for the loan. For those looking to purchase or refinance a property or to build or expand a property for their business, financial institutions offer commercial mortgages.
Government agencies might be willing to lend a helping hand, as well. Organizations such as the Small Business Administration, the New York Business Development Corp. and the Long Island Development Corp. offer a suite of loan programs for businesses that qualify. For instance, a 7(a) loan is the SBA's primary business loan program. A 7(a) loan can be used for most business purposes, such as start-up, expansion or real estate acquisition. A company applies for the loan through a private lender.
Before you shop for any of these loans, create a thorough business plan. This document will help you communicate with prospective lenders, in addition to helping you determine how much money you need to borrow.
When you're ready to shop for a loan, start with the bank that handles other aspects of your business. If you have established a relationship with a bank, and it knows you are a reputable business, it may be more likely to extend financing to you. After all, when it comes to lending money, few things trump trust in importance.
If you don't qualify with your bank, check with a few others. Ask other businesses in your industry which banks have extended loans to them. If you are having trouble qualifying for a loan, a loan broker may be able to shop around on your behalf to find a willing lender.
When evaluating a loan request, a lender will look at three criteria, known as the 3 C's: your credit rating, your capacity to pay back the loan and collateral - if you default on the loan, from which assets can the lender recover its investment?
Some lenders are more conservative than others. For instance, some might want to see three years' worth of financial statements without any red ink, which would leave startups and other high-risk businesses out in the cold.
When evaluating loans, consider not only the interest rate, but any fees that apply. In addition, find out if there is a penalty for paying the loan back early.
Look for a lender that focuses on companies that are about the same size as yours. A larger bank may not be the best match for a small business, which may feel like it is relegated to small-fish- in-big-pond status. Building a relationship with an interested bank that will take the time to learn your business will be very important to your company in the long run.
The Checklist
Term loans are a very common, general-purpose loan. A company may obtain one of these to finance equipment purchases, expand its business or make an acquisition.
Lines of credit are commonly used to protect a business against short-term cash-flow problems and are not intended for long-term financing of major purchases.
Government agencies such as the Small Business Administration offer a suite of loan products to businesses that qualify.
When you're ready to shop for a loan, start with the bank that handles other aspects of your business.
When evaluating a loan request, a lender will look at three criteria, known as the 3 C's: your credit rating, your capacity to pay back the loan and collateral.
Commercial Loans
Subscribe to:
Post Comments (Atom)
1 comment:
Getting a commercial loan, or small business loans, can seem to be a daunting task, especially if you've never had one before or don't know what you're looking for. The best thing is to just be educated as to what the different terms and things are that you read in your contract, and you'll be just fine.
Post a Comment