A commercial loan can be used for practically any business-related purpose. You may choose to deploy the funds that you borrow to buy inventory, acquire a capital asset, or pay your employees.
Anything that can help you grow your business.
In this post, we’ll discuss how commercial loans work. We’ll also describe the different types of commercial loans and explain how they can be used.
What is a commercial loan?
The first thing to remember is that the terms “commercial loan” and “business loan” can be used interchangeably. Both refer to the sums that businesses borrow from financial institutions.
What can you do with the money raised from a commercial loan? Most business owners use these funds in one or more of the following ways:
To meet their working capital needs
Your cash could be blocked in the inventory that you recently purchased. Or your receivables may have increased.
A commercial loan could be the best solution for a cash-hungry firm.
To buy properties or new machinery
Fixed assets can be expensive. A majority of business owners don’t have enough money to purchase costly equipment or office space with their own funds.
To buy another business
There are two ways to boost your company’s revenue and net income. The first involves organic growth. In this method, you use your existing infrastructure to increase your sales steadily.
Inorganic growth provides a faster option. You can double the size of your company by acquiring another business. A commercial loan could give you the money you need to make the purchase.
To pay for a marketing campaign
Sometimes, a marketing campaign can pay rich dividends. You could see a big jump in sales if you increase your geographical reach or your market segment.
But these initiatives can be expensive. A commercial loan could give you the funds you need to put your plans into action.
Commercial loan requirements
Planning to approach a lender for a commercial loan? Here are some details that you should be aware of before you start the process.
Many lenders insist that you provide them with security. This could be in the form of real estate, inventory, or the machinery that you use to manufacture the products you sell.
Why do lenders insist on collateral? They want to ensure that they’ll get their money back. If you can’t repay your business loan, the lender could sell the asset that has been provided as collateral.
If you can’t provide collateral or would prefer not to, you could opt for an unsecured business loan. This is a commercial loan that is provided based on your company’s ability to repay.
Minimum credit score
Some loans are available at very low rates. But there’s a catch. You need a good credit score to qualify for them.
Each lender has different requirements, so you need to check with them what credit score you need to be approved. But most of them will ask you to have a minimum credit score in the 620 to 680 range.
Time required to approve your commercial loan
According to the Small Business Credit Survey 2019, which was carried out by a national collaboration of the 12 Federal Reserve Banks, traditional lenders can be slow to provide a reply to your loan application.
The Credit Survey states, “Bank applicants were most dissatisfied with wait times for credit decisions.”
When a small business owner applies for a commercial loan, the speed with which funds are made available could be a critical factor. Getting an approval weeks or months after the application was made could be meaningless. By that time, the business opportunity could have slipped away.
On the other hand, online lenders tend to be quicker to approve a loan. Some online lenders have an approval period of less than a week, and sometimes you can even receive funds 2 days after being approved.
The lender you approach could impose additional conditions. For example, you could be asked to provide a social security number. If you don’t have one, your loan application could be rejected.
Some financial institutions insist that the borrower should have been in business for at least 2 years. If you started your firm recently, you wouldn’t qualify.
How can you increase the probability of getting your loan application approved? We invite you to have a look at Camino Financial’s loan approval conditions.
Camino Financial’s commercial loan approval conditions
- We provide small business owners with an instant loan quote. Just tell us a few details about your business.
- There’s no need to provide any collateral. Camino Financial’s loans are collateral-free.
- You don’t need to have a credit score. We can provide commercial loans to people without a credit history.
- We’re fast. We can provide funding in as little as 3 to 10 days from the day you apply.
- You don’t need a social security number to apply. All we need is your ITIN.
At Camino Financial, our motto is “No business left behind.” We designed our loan approval procedure to ensure that we can provide funds to the broadest possible range of business owners.
Different types of commercial loans
One could group commercial loans into various categories.
Banks and other financial institutions provide term loans. They are for a fixed period that could extend up to 25 years. The usual repayment terms are monthly or quarterly basis.
You can use commercial loans typically to buy expensive equipment, also, for a company’s working capital requirements.
You may use a commercial loan to refinance your existing debt. This involves taking a low-cost loan to pay off your high-cost debt.
Loan refinancing could save you hundreds of dollars every month in interest costs.
Short term business loan
These commercial loans can provide your company with immediate cash. Short term business loans are typically repayable over 1 to 5 years.
Some business owners use credit cards to meet their urgent borrowing needs. However, short term loans are a better option as they are usually available at lower interest rates.
This type of commercial loan is for business owners who need to borrow a relatively small sum. For example, Camino Financial provides microloans for amounts up to $75,000.
A word of caution here. Some entrepreneurs turn to personal loans or payday loans when they need quick cash. That can be a mistake. Microloans are more economical and a better fit for business needs.
Unsecured business loan
As its name implies, an unsecured business loan is one in which the borrower doesn’t have to provide collateral. These loans can be a good substitute for borrowing funds with your credit card.
This type of commercial loan involves borrowing against the security of an office building or some other commercial property.
Commercial mortgages are different from residential real estate loans.
A commercial mortgage is usually based on the property’s expected operating income. A residential real estate loan, on the other hand, is approved after determining the creditworthiness of the borrower.
It could be a good idea to raise money for your business with an SBA loan. These are commercial loans for small business owners that are partially guaranteed by the government. The government guarantee helps to lower the interest rate.
SBA loans are available at rates that could be as low as 7.5% to 9.5%. Although it can be hard to be approved by one of these loans: they have rigorous requirements.
Apply for a Commercial Loan
Commercial loans come in various forms and sizes. There’s one for practically every type of business requirement. If you’re planning to raise money for your company, consider approaching us at Camino Financial.
Our team understands your needs. We’ll help you get the money that you need for your business. Our Camino Financial’s loan specialists will guide you through the borrowing process and ensure that you get a loan at the least possible cost.
Our motto, “No business left behind,” is the guiding force for our people. We’ll work with you to take your business to the next level.