One of the primary goals for any business owner is growth, and one of the most common ways to finance business growth is through commercial lending.
Whether you’re looking to expand your product offerings, hire additional staff, or open new locations, you need access to capital to make this happen.
In this guide, we’ll explore the world of commercial lending, discuss the different types of commercial loans available, and provide valuable insights on how to secure the funding you need to take your business to the next level.
What’s your loan scenario?
Types of commercial loans available for business growth
There are several types of commercial loans available to business owners looking to finance their expansion.
Understanding the different options and their unique features is the key to determining the best fit for your needs.
Term loans
Term loans are a fairly conventional type of commercial loan—providing a lump sum of capital upfront, thenn it is repaid over a set period with interest.
These loans are used for a variety of purposes, including, but not limited to:
- Financing equipment purchases
- Property acquisitions
- Business expansion
Term loans can be short-term (repaid within a year or two) or long-term (repaid over several years), with varying interest rates and repayment terms.
Equipment loans
Equipment loans are specifically designed to finance the purchase of machinery, vehicles, or other equipment necessary for business operations.
These loans typically require a down payment and are repaid over the life of the equipment. Marquee Funding Group uses personal property as a collateral. We do offer Equipment financing; however, it must be backed by some sort of Real property.
Commercial real estate loans
Commercial real estate loans are used to finance the purchase or renovation of commercial property.
These loans can be used to acquire new locations, expand existing facilities or invest in property improvements.
Commercial real estate loans typically come with longer repayment terms and more competitive interest rates compared to other types of commercial loans, making them an attractive option for many business owners.
How to determine the right commercial loan for your business
To narrow down your options and find the best fit, here are some factors to keep in mind.
Purpose of the loan
Before you start exploring commercial lending options, understanding how you plan to use the funds is essential.
Different types of loans are better suited for specific purposes, such as equipment loans for machinery purchases or commercial real estate loans for property acquisitions.
A clear plan in place can help you identify the most appropriate loan type for your needs.
Loan amount and repayment terms
Consider how much capital you need to achieve your growth goals and how long you expect it will take to repay the loan. This can help you determine whether a short-term or long-term loan is the best fit, as well as which lenders offer the most favorable terms for your needs.
Interest rates and fees
Commercial loan interest rates and fees can vary widely between lenders and loan types. Be sure to compare the total cost of the loan, including interest rates and any additional fees, to ensure you choose the most cost-effective option or the option that best fits your needs.
Collateral requirements
Many commercial loans require collateral, such as real estate, to secure the loan. Consider which assets you are willing to use as collateral and whether you have enough equity in those assets to satisfy the lender’s requirements.
Eligibility requirements, including credit scores
Each lender has its own set of eligibility criteria for commercial loans, such as credit scores, financial statements, and business history. Ensure you meet the requirements for the loan you are considering before applying to increase your chances of approval.
In particular, credit scores and financial statements play a critical role when it comes to conventional lenders—these documents are essential to evaluate your ability to repay the loan.
A poor credit score will typically eliminate the business owner’s options for securing funds through traditional lending. However, non-traditional lending options, such as Marquee Funding Group, still exist as a great way to secure financing regardless of low credit scores.
Steps to secure a commercial loan for business expansion
Once you have determined the right commercial loan, the next step is to secure the funding. Here are the steps you should follow to increase your chances of success.
Prepare a detailed business plan
A comprehensive business plan is an essential part of any commercial loan application.
Include a clear explanation of how you plan to use the loan funds, financial projections that demonstrate your ability to repay the loan as well as an exit strategy for the loan if you plan on refinancing elsewhere with a traditional lender.
Highlight your business’s strengths and growth potential, as this can make your application more attractive to lenders.
Gather the necessary documentation
In addition to your business plan, lenders will typically require a variety of financial documents to assess your loan application, including tax returns, financial statements, bank statements, personal financial information, schedule of Real Estate, etc.
Gathering these documents ahead of time will streamline the application process.
Research lenders and loan options
As mentioned earlier, there are several types of commercial loans and lenders available to business owners.
Research your options and identify the lenders that offer the best terms for your needs. This may include banks, credit unions, private lenders, or government-backed loan programs, such as SBA loans.
Apply for the loan
Once you have identified the right lender and loan type, it’s time to submit your application.
Follow the lender’s application guidelines, provide all requested documentation, and be prepared to answer any questions they may have about your business or financial history.
Negotiate the terms
If your loan application is approved, you may have the opportunity to negotiate the terms of the loan, such as interest rates, repayment terms, and collateral requirements.
Advocate for your business and ensure the terms are favorable for your needs.
Close the loan
Once the loan terms have been agreed upon, the final step is to close the loan—signing loan documents and providing any additional collateral required by the lender.
Review the loan documents carefully and consult with a legal or financial advisor if you have any questions.
The benefits of hard money lenders for commercial loans
Hard money loans are a type of commercial lending offered by private lenders rather than traditional banks or credit unions.
Typically secured by real estate, these loans can be a valuable financing option for business owners who need access to capital quickly or have difficulty securing traditional commercial loans.
Speed
Hard money loans are frequently approved and funded much more quickly than traditional commercial loans—often within a matter of weeks, unlike traditional lenders whose closing times are at minimum a few months.
This can be especially beneficial for business owners who need access to capital quickly to take advantage of time-sensitive opportunities or address urgent needs.
Flexibility
Hard money lenders are typically more flexible than traditional lenders when it comes to underwriting and loan terms. They often have fewer eligibility requirements and are more willing to work with small business owners who have unique financial situations or credit challenges.
Short-term financing
Typically short-term, hard money loan terms often range from one year up to 3 years.. This can be an attractive option for business owners who need access to capital for a short period or those who expect to refinance or pay off the loan in the near future.
Collateral-based lending
Hard money loans are commonly based on the value of the collateral (usually real estate) rather than the borrower’s creditworthiness.
This can be advantageous for business owners who have less-than-perfect credit or difficulty proving their income through traditional means.
Maximizing the potential of commercial lending for expansion
Commercial lending can be a valuable tool for business owners looking to finance their expansion and achieve their growth goals.
By understanding the different types of commercial loans available, identifying the right loan type for your needs, and following the steps to secure the funding, you’ll unlock new opportunities and propel your business to new heights.
Hard money lending is ideal for many borrowers, including small business owners, self-employed borrowers, fix-and-flippers, real estate investors, or any borrower who might have a difficult time proving to traditional lenders that they qualify.
Submit your loan scenario today to the expert loan officers at Marquee Funding Group.
We can help you find a solution to your unique lending scenario with our flexible, down-to-earth approach to hard money lending.
Photo by Adrien Olichon