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Commercial Business loan

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What Is a Commercial Loan?

A commercial loan is a debt-based financial product that is used for small business needs like real estate purchases, working capital, and even equipment. When your business is growing rapidly and needs a quick influx of cash, consider applying for a commercial loan. There is a variety of commercial loans available, from traditional term loans, equipment loans, and SBA loans to business lines of credit and merchant cash advances. Every commercial financing type works differently and has its own rates, terms, and eligibility requirements.

PROS

  • Provides a cash flow boost
  • Uphold your business ownership
  • Access to large loan amounts

CONS

  • Extensive paperwork and application process
  • Lack of flexibility to use the funds
  • You can lose valuable assets in case of default

Commercial Loans for Small Businesses

Most small business owners count on commercial business loans to fuel their growth or fund initiatives like real estate purchases, buying equipment, or simply for working capital needs. Luckily, there are many alternative lending options available today for small business owners apart from traditional sources.

Primarily, traditional sources such as banks are the most common source of commercial financing. Unfortunately, with the stringent qualification criteria, it’s really difficult for small businesses to qualify for commercial financing. They likely lend to established businesses with a strong credit profile, have annual revenues in millions, and that can offer collateral for the loan. If you’re unable to meet the criteria, they’ll likely turn you down for a commercial loan.

Online Lending Is a Better Solution

Online lenders, like Merchant Advisors, has easy and simple lending criteria as compared to traditional lenders—and a good alternative to traditional bank loans. We consider your business performance and a variety of different factors like business and personal credit score, cash flow, and annual revenues to determine your business creditworthiness. When a bank says ‘NO’ to your business loan application, we say ‘YES’, and in many cases, you could be approved within one hour and have funds into your bank account in 24 to 48 hours.

Fuel your business growth with commercial loans

Commercial Loan Documentation

Every commercial lender has its own set of paperwork requirements and terms. Lenders like banks might ask for extensive paperwork, while short-term lenders and cash advance providers might ask for just a few documents. Among all the documentation, almost every lender will require your recent bank statements, tax returns, time in business and purpose of the loan. Having the below listed documents can get you quick approval on your commercial loan application. Here is a complete list of commercial loan documents you should have before applying for commercial financing:

  • Business information
  • Personal information
  • Recent bank statements
  • Business and personal tax returns
  • Financial statements
  • Business plan (for startups)
  • Time in business
  • Purpose of the loan
  • Business debt schedule
  • Collateral documentation
  • Cash flow forecast

Benefits of Commercial Business Loans

Commercial loans can cover the expenses of equipment financing or cost of remodeling and business expansion. Apply for a Commercial Loan keeping the following benefits in mind:

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Types of Commercial Loans

If you’re unable to secure commercial financing from traditional lenders, don’t worry, there are many great commercial loans available for your small business. Here are your top commercial business loan options:

  • Traditional Commercial Term Loans

    With a traditional term loan, you borrow a set amount of money from $5,000 to $500,000, which you’ll repay over time with interest. Banks offer longer loan terms typically range from 10-25-years. With alternative commercial financing companies, you can secure medium-term loans with terms from 2-5 years. Medium-term loans are very multipurpose with predictable monthly payments, and works best for businesses that have a specific goal for their funding. The loan rates typically range from range 6% to 30%.

    Qualification Criteria:

    • Time in Business: at least two years,
    • Annual Business Revenue: over $100,000,
    • Credit Score: 600+
  • Short-Term Commercial Loans

    Short-term commercial loans are best for businesses with immediate expenses such as to leverage an opportunity, unexpected emergency or small one-time expense. With short-term loans, you can get cash from $2,500 to $250,000 with daily or weekly terms from three to 18 months. The shorter the loan term, the larger your daily (or weekly) loan repayments will be. Short-term lenders typically approve within the same day. These loans are best suited for startups and new businesses with lower credit scores. Since access to these loans is quick, they tend to have high interest rates starting at 8.5%.

    Qualification Criteria:

    • Time in Business: at least one years,
    • Annual Business Revenue: over $50,000,
    • Credit Score: 500+
  • SBA Commercial Loans

    The Small Business Administration (SBA) loan is another popular lending program for small businesses. The SBA doesn’t extend commercial loans, but partially guarantee the loans that are made by banks and other financial institutions. The guarantee is to incentivize lenders to make loan qualification easier for small business owners. SBA loans work similar to traditional term loans but with longer terms (five to 25 years) and lower interest rates (starts at 5%). Almost every SBA loan program has a monthly repayment structure, but the exact terms are based on the loan program you’re applying for. The SBA offers three types of commercial loan programs: the SBA 7(a) program, the CDC/504 program, and the SBA microloan program. Each SBA loan program has its own distinct terms and uses.

    7(a) Loan Program - The most common SBA loan type for small business owners. You can get cash up to $5 million and use it for almost any business purpose.

    CDC/504 Loan Program – This loan program is best suited to purchase major fixed assets. You can get cash up to $13 million and use it to buy real estate, large equipment, or upgrades. The CDC/504 loan program is heavily structured – giving you terms up to 25 years at lower interest rates, and is best for businesses with stellar credit score and proven track record.

    Microloan Program – This loan program is best suited for startups and new businesses that are unable to meet most commercial loan requirements. You can get cash up to $50,000, even if you have a little-to-no credit history.

    Qualification Criteria:

    • For 7(a) and CDC/504 loan program, your business needs to have strong credit and a profitable business to qualify.
    • For Microloan, your business needs to prove sufficient cash flow to afford the loan payments with no recent bankruptcies or foreclosures.
  • Equipment Commercial Financing

    For businesses that require an expensive piece of equipment, equipment commercial loans can help. With equipment financing, the lender finances the equipment for you to use with convenient monthly payments, so you don’t have to pay the full cost upfront. With equipment loans, you get up to 100% of the equipment value with terms from one to five years at interest rates from 7% to 30%. The repayment terms of equipment financing are extended to the expected lifetime of the equipment. However, some lenders will offer terms form one to five years, with monthly repayments. You can also finance equipment via an equipment lease. Where you get equipment at lower monthly payments, but don’t own the equipment.

    Qualification Criteria:

    • Qualifying for equipment loans is easier since the equipment itself serves as collateral for the loan. If you default the lender can take the possession and sell the equipment to recover their money. With that said, the type and the condition of equipment are important evaluating factors for the lenders rather than your creditworthiness.
    • For low credit score borrowers, a higher down payment may be required. In order to get 100% financing, you need to have a strong credit profile.
  • Commercial Real Estate Loans

    When you need to purchase or upgrade your commercial property, such as office space, warehouses, or manufacturing units, a commercial real estate loan can help. With commercial rea; estate loans, you can finance property purchases or upgrades from $200,000 to $20 million+ at rates from 5% to 30%. Most commercial loans have fixed interest rates and monthly repayments, and specialized commercial loans like bridge loans have balloon payments at the end. Similar to equipment financing, the property here itself serves as the collateral for the loan. This is why these loans also carry lower interest rates. Since commercial real estate loans are pricey, the loan repayments are spread out over a longer period of 20 or 25 years.

    Qualification Criteria:

    • For bank commercial loans, you need high credit and at least two to three years of time in business.
    • For hard-money commercial lenders, a business with a slightly lower credit score can get approved but should be generating revenue.
    • You can also secure commercial lending from crowdfunding platforms. On crowdfunding platforms, different investors collaborate and invest their money to fund your commercial loan.
  • Commercial Business Lines of Credit

    Business lines of credit are the most flexible commercial financing option for small businesses offered by banks and online lenders. Banks offer traditional lines of credit, and online lenders offer short-term lines of credit. A business line of credit works similar to a credit card, you get access to a credit limit, which you can draw from, and use up to your maximum limit. You only pay interest on the funds you use, and after you repay, your credit limit goes back up to its original amount – making it a revolving credit line. With a business line of credit, you can get cash from $5,000 to $1 million with daily, weekly, or monthly repayments terms from six months to five years at rates from 7% to 25%. The added flexibility of line credit allows you to withdraw and repay the cash as and when needed.

    Qualification Criteria:

    • For a bank line of credit, you’ll need to have a credit score of 700+ with solid business history and profitability
    • For a short-term line of credit, you’ll need to have a credit score of at least 630 and one year of time in business.
  • Merchant Cash Advances

    Loan Amount: $5,000 to $250,000

    With merchant cash advances, you get a lump sum of money in exchange for a fixed percentage of your daily credit/debit card sales. A merchant cash advance is a quick way to secure funding for your small business. The best thing about a merchant cash advance is that you’ll pay as you make money. The more you earn, the more you pay and vice versa. The major downside of cash advance is that it carries high cost (APRs from 15% to 110%) – making it the most expensive commercial loan option. Merchant cash advance lenders use “factor rates” rather than interest rates. A merchant cash advance APRs range from 15% to 110% or more. It’s the best financing option for borrowers that have poor credit ratings and have no collateral to offer. Before selecting this expensive option, make sure to review your options thoroughly.

    Qualification Criteria:

    • Time in Business: at least two years,
    • Annual Business Revenue: over $180,000,
    • Credit Score: 550+

Why Merchant Advisors?

At Merchant Advisors, we understand your unique needs and provide customized small business loans to keep your small business progressing.