Quick Tips on How to Get a Commercial Loan to Grow Your Business

Written by Zac Johnson
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Making the decision to take on debt for your business isn’t one that should be taken lightly.

What if you’re considering applying for a commercial loan to help you finance your dream brick and mortar office or store?

We know that you want to understand the best possible options before you make a final — and expensive — decision. You may feel that a commercial real estate loan is the right choice, but want to learn more about the process.

In this post, we’ll tell you what you need to know to get the funding your business deserves.

What Is a Commercial Building Loan?

Before we discuss the requirements and specific benefits of a commercial loan, let’s make sure you’re clear on what one is.

In a nutshell, a commercial real estate loan is an arrangement between a place of business and a loan provider.

These providers can be banks or private lenders. Many people elect to get their loans from commercial financing companies.

This is because smaller businesses especially struggle to get loan approval from a bank.

In the case of commercial real estate loans, you’ll use the money the lender provides to you in order to finance the construction of a brick and mortar store, office, or general place of business.

You can also use the money from your commercial real estate loan to upgrade and renovate a property you already own.

It’s important to realize that a commercial loan is made to a business, not to an individual. This means that the loan payment will actually be given to a corporation, a trust, or a limited partnership (to name just a few examples.)

Of course, since the payment isn’t being made to a person, but rather to a company, it can be tough to prove you have strong credit and are in good financial standing.

So, depending on the lender, you may need to elect a few principals — people who are the company’ owners. You’ll then give the lender your credit history, and other financial information.

In some cases, the property itself may serve as the collateral.

Standard Commercial Loan Requirements

Now that you have a better grasp on what a commercial loan can help you with, let’s talk about the requirements you need to have.

First of all, in most cases, you’ll have to show that your business occupies at least 51% of the building you want to purchase.

You’ll need to give the lender five years of your tax returns, an independent property appraisal, and a business plan. You’ll also need to provide them with a certification from the state that proves you’re a corporation.

In some cases, you may need to give specific financial reports. You may also need to show the lender a projected cash flow. This helps them to know you’ll actually be able to repay the loan.

You’ll also need to seriously consider your commercial real estate loan down payment.

These down payments are a percentage of the total amount of the loan.

You’ll need to be able to pay these upfront in order to get the loan you want. So, when you’re looking at your options (more on that in a minute) ensure the percentage is one you can afford.

The good news is that there are lots of ways a commercial real estate lender may be able to work with you. This will increase your chances of getting the loan you desire. Check out this article from Assets America to learn more about selecting the right broker for your needs.

Types of Commercial Real Estate Loans

If you want a commercial real estate loan, the good news is that you’ll have plenty of options to choose from.

There are five main types of commercial loans.

The first is an SBA7(a) loan, which is actually backed by the SBA itself. These are the most popular loans, and can go up to $5 million. In most cases, they carry interest rates of anywhere from 5-8.75%. You’ll pay them back over a period of about 10 to 25 years.

You may also consider a CDC/SBA 504 loan. This is also backed by the SBA, and it doesn’t have a maximum borrow amount. You’ll need to pay a minimum down payment of 10%.

Often, people think of this loan as two loans. This is because it’s, in addition to being backed by the SBA, also backed by a Certified Development Company (CDC.)

Their low down payment makes them a popular choice for young businesses.

You could also choose a traditional commercial mortgage loan issues by a bank. The down payment can be anywhere from 15-35%. They’re tougher to get than other types of loans, but they offer low-interest rates.

In some cases, you may choose a commercial bridge loan. This is a short-term option, and you’ll later refinance the loan into a long-term mortgage. The term is anywhere from 6 to 36 months in total.

Finally, you might want a hard money loan.

This is also a short-term option. Once again, you’ll later refinance and turn this loan into a mortgage. This is the best choice for those who need money as soon as is possible.

Is a Commercial Loan Right for Your Business?

We hope this post has not only explained what a commercial loan is, but also helped you to determine if getting one is the right idea for your business.

Looking for advice about how to pay off loans and business debt? Want to learn more about the different types of business loans available to you?

No matter what kind of business you’re in, or your financial situation, our blog can help you to grow.

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