Commercial lending plays an important role in helping businesses grow and thrive. If you are expanding a small business or already have an established company, understanding this topic is essential to reach your professional goals. In this blog, Integrity Capital Partner Group discusses the basics of commercial lending to help you make informed business decisions.
Understanding the Basics of Commercial Lending
Defining Commercial Lending
Commercial lending refers to the process of businesses borrowing money from financial institutions and using it for business-related purposes. Business owners can utilize this money to purchase equipment, renovate their space, or obtain new land or buildings. This financing can also help support day-to-day activities such as payroll, purchasing inventory, and other operational costs. Since small businesses often struggle with cash flow, business loans give them the ability to utilize money now and pay it back over time. These loans are used to help businesses get their feet on the ground or continue to grow in hopes that they make their own money.
Benefits of Commercial Loans
Corporate loans can offer businesses a multitude of benefits and advantages.
Commercial loans are different from personal loans. Personal loans are tied to personal finances and include a personal guarantee. A personal guarantee requires the person that requests the loan to be fully responsible for paying off the debt. Business loans are tied to the company instead of the owner's finances, so it is possible to get a loan without a personal guarantee. Commercial loans usually only appear on the businesses' credit reports and can help establish business credit.
This funding can also be used to expand businesses into new areas and markets. With more capital, businesses can purchase new locations and improve their products leading to overall business growth and increased revenue.
Commercial lending can also help businesses become more efficient and competitive. The availability of funding allows companies to invest in new equipment and technology. These assets can streamline business operations so production is quicker and more productive. They also help improve innovation processes and produce top-of-the-line products and services.
Lastly, commercial loans help maintain cash flow and provide a sense of financial security during economic challenges. Having access to financial sources during unprecedented times can prevent operational delays and loss of sales.
Types of Commercial Loans
Several types of commercial loans are available to companies. Some options are generic and can be used for multiple purposes, and there are other loans that are tailored to specific investments and purchases. Here are some of the most common types of business loans:
Business Term Loans: These loans are ideal when businesses require a specific amount of money for a certain project. Financial institutions will provide businesses with a lump sum of money that they will repay over a set period usually in fixed monthly payments.
Commercial Real Estate Loans: Real estate lending is used to buy or renovate investment properties. These loans are usually repaid over a longer period because they consist of larger quantities.
Lines of Credit: This option is similar to a credit card. Businesses can borrow money until they reach their limit and will make monthly payments on their credit balance. Credit lines are ideal when purchasing supplies or there are gaps in cash flow.
Qualifying for a Commercial Loan
There are several requirements that lenders consider when it comes to qualifying for a corporate loan. Businesses will need to provide information to institutions during the application process to determine whether they can be approved. This information includes financial statements, clearly defined business plans, an explanation of how the loans will be used, and sources to demonstrate their knowledge and experience in the industry. Here are some examples of the criteria lenders consider:
Many commercial loan brokers consider the age of the business and will require businesses to be at least one year old before they can begin the application process. If the business is just starting out, loans are typically more difficult to obtain.
Commercial lenders review creditworthiness and will often check personal and business credit. Often, institutions will require a minimum business credit score to manage risk and determine interest rates.
Another criterion institutions examine is business revenue. This aspect is important because businesses need to demonstrate that they are financially stable and can pay the loan back to their lender.
It is important to acknowledge that different banks or institutions will have varying requirements. With this in mind, businesses can research and select one that best suits their situation and needs.
This key information can help businesses obtain the financial support they need to flourish. Commercial loans provide the means for companies to expand and increase their market share. At Integrity Capital Partner Group, we offer loan programs that can be tailored to your specific business needs. Contact us today to request a free quote to ensure your business’ success!