Businesses rely on finance companies to help them maintain a working capital to run the business. These institutions lend the necessary amount of money to pay for various expenses, payroll, and other overhead costs of the company. The main functions of these commercial finance providers are to provide loans to business institutions and individuals. But they do not receive deposits or keep savings like the banks.
Most of the time, a commercial loan is considered as a long-term loan used for different purposes like hiring and keeping staff, purchasing equipment, or buying real estate property.
Read on to fully understand what a commercial loan is all about.
Examples Of Commercial Loan
One of the country’s biggest banking institutions offers a minimum of $250,000 loan amount that is payable for at least one year up to 25 years. They also provide their clients with both variable rates and fixed rates for every loan approval. The clients also have the option to redraw if they choose the variable rate alternative. They can also secure the loan using commercial, residential, or agricultural properties.
You may also find another financial institution offering loans reaching $1 million. These loans either have a fixed or variable rate. It also comes with either interest or principal repayment options that are payable within 1 to 15 years.
Most banks usually require about two years of financial statements of the applicant when applying for commercial loans. But if you are applying for a loan to fund your new business, this requirement will make it impossible for you to get approval. It is the reason why you may consider getting the funds from alternative fund sources and reliable commercial finance providers.
How to Apply for Commercial Loans
There are several steps to be taken to help you successfully apply for a commercial loan.
First, you need to ensure that you accomplish all the necessary paperwork. It includes listing down your detailed credit history, submitting relevant financial statements, presenting a copy of a solid business plan, and a strong proof of ability to pay back the loan.
You also need to take note of the Five C’s of Credit while filling up your application. These are what most commercial finance providers look at before giving their approval. They are:
- Conditions – It includes essential details like amount borrowed, interest rate, and repayment terms.
- Collateral – Your properties and other assets that the lender can repossess if you cannot pay your loan.
- Cash Flow – It talks about your other income source and your current financial position.
- Character – The lenders will base it on your credit history to know if you are trustworthy to sanction the loan.
- Capital – The amount that you have on hand that you may use to invest in your business
How Much Interest Do You Need to Pay?
One of the major factors that can help you determine which commercial finance providers to apply for a loan is their interest rate policy. Some institutions have higher interest rates compared to others. Some lenders base the interest rate on the loan applicant’s financial standing and asset security. Meanwhile, start-up businesses with little experience or just starting to enter the industry can have higher interest rates.
By learning all these details and following them, you will probably get approval. But be sure you secure the loan from any of the most trustworthy commercial finance providers in the country for the smooth operation of your business.
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