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Commercial Loans: Types, Application Process & How to Apply It?

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When starting or expanding a business, one of the most important decisions an entrepreneur will make is how to finance the venture.

Fortunately, there are a variety of loan products available to help businesses grow, including commercial loans. 

Commercial loans are a type of loan that businesses can use to finance short-term or long-term business operations. 

There are a variety of commercial loan products available in the market, and businesses should assess their needs and obtain quotes from multiple lenders to find the best product for them. 

Commercial loans typically have higher interest rates than personal loans, and borrowers should make sure they can afford the monthly payments before applying. 

Lenders will also typically require a business plan and financial statement from the borrower to assess their creditworthiness. Before going through the loan process, let’s find out its types. 

Types of Commercial Loans

There are a variety of commercial loans available to business owners. The most common are term loans, equipment loans and real estate loans.

Term loans are the most basic type of commercial loan. They are unsecured lines of credit that can be used for any purpose. Term loans usually have a fixed interest rate and a set repayment schedule.

Equipment loans are secured by the equipment that is being purchased. The loan amount is based on the value of the equipment, and the interest rate is usually lower than a traditional loan.

A real estate loan is a type of loan which is secured by the value of a property. The property may be residential or commercial.

The lender will usually make a loan to a borrower based on the value of the property, and the ability of the borrower to repay the loan. In most cases, a real estate loan will be a mortgage loan.

Processes in Commercial Loans

The application process of getting a commercial loan can be quite daunting, especially if you aren’t sure what you’re getting yourself into. 

People always assume it’s the same as applying for a personal loan. But it is quite a different process altogether. 

Waiting can be frustrating because there is a lot of paperwork coming in and out, and it takes a long time to get your loan approved. One common way to do it is to use a broker. So read this,

  • When you submit your loan application, the reviewer, who is usually called a loan officer, will check all the paperwork you have submitted. 
  • He will check your credit history, income statement and collateral. If additional paperwork is required, the loan officer will notify you, and you will be required to resubmit the application.
  • Usually, loan applicants have to provide extra information when it comes to certain types of loans such as a loan for purchasing commercial real estate. For this, you will need to submit things like area environmental reports, area maps and appraisals. 
  • When all the necessary paperwork is gathered together in a loan packet, it is sent to a number of leading institutions, who will check the documents and decide if they should be approved. 

This process can be made easier if you use a broker. A broker may be able to make things proceed more speedily for you. Your application will then be checked by loan committees or underwriters. They will provide you (the applicant) with a letter. 

This is called the ‘letter of intent’ it is just a preliminary document that helps you (the applicant) and the potential money lender to decide what exactly is desired by both parties. 

This is an underwriting process. Extra paperwork might be needed, but it depends on the situation. It usually takes about a week for the decision to be made. 

The underwriter is always the best person to contact when you need to negotiate important offers & terms and to know things like interest rates and the repayment period. 

After the money lenders make their offer, you will need to go through the offers and choose the one which is the most attractive in regard to your business. 

Once you have chosen an offer that you like, you will need to sign your name to the ‘letter-of-intent’ from the bank you have decided on. Extra fees and deposits may also be necessary to finish the process of your loan application. 

If your loan has been approved a closing agent takes over and guides you through the many necessary formalities in order to close the deal. 

After you’ve completed all of the documentation, you’ll receive your loan funds in the form of a cheque or a direct debit, depending on what you agreed to.

Conclusion

This article provides a guide on how to apply for commercial loans. It covers the different types of loans available, the documentation you will need and the process of applying. 

If you are looking to expand your business or get a start-up off the ground, commercial loans may be a good option for you. Like and comment to let us know what you think.

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