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Commercial Loan Comprehensive Guides for Business Owners

Business owners often think that a bank loan is the one and only option to bring in capital to expand and grow their business. On the contrary, there are multiple options of getting a commercial loan beyond a traditional bank loan that mid and small business can opt for. However, different business loans have different rates, requirements, terms, and qualifications. So, each of these loans has been designed for different business requirements.

While all these loans are made for the benefit of small business owners, not many know which one to apply for. So, here we will give you a quick summary of 6 types of commercial loans that can be availed by small business owners to get working capital, buy real estate, equipment, or increase inventory.

Commercial Loan for Established Small Business Owners

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Bank Lines of Credit

This particular loan is best suited for small established business owners who have a great credit score and basically require a cash cushion to fall back on. However, if you are starting a new business or have a bad credit score, you would want to avoid applying for this type of business loans.

If you apply for the bank lines of credit loan, the bank will loan you a specific amount of money that you can withdraw at any point of time when you need it. The line of credit can be either revolving or fixed. If you choose a revolving credit line, the credit will reset itself once the balance is paid in full, similar to how a credit card works. This business loan comes in handy whenever you need the money quickly.

Here are the benefits of opting for bank lines of credit for Commercial Loan owners

  • Manage seasonal cash flow crunches
  • Get ready cash for unexpected emergencies
  • Pay for routine operational expenses
  • Maintain proper cash flow while waiting for customer payments
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Bank Term Loans

This loan is again for established small businesses who have a great credit score and need a lot of funding. While the world of small businesses has expanded over time, the bank is still the institution that offers the cheapest capital to lenders. However, it is very difficult for small businesses to qualify for a bank loan as large banks reject about 75 per cent of loan applications submitted by small business owners. In addition to this, getting such a loan is a very time-consuming affair.

If you need to borrow cash fast, then you should not opt for bank term loans. However, if you can afford to wait, then you might want to apply for this loan, as it is the most affordable option with interest rates ranging from 4 to 10 per cent.

Here are the benefits of applying for a bank term loan,

  • Renovating or remodelling your office premises
  • Investing in real estate
  • Mergers with or acquisition of other businesses
  • Planning long-term expansion for your business

Before you apply for bank term loans, ensure that you have an impeccable credit score and the finances to back up your application.

Commercial Loan for Newly Established Small Businesses

If you have just established your business and are still working on building a sustainable revenue stream, a good credit score, and profit, it is likely that you will not be approved for bank loan products. However, not to worry, as there are many business loans that you can apply for to finance your business.

Invoice Financing

You can apply for invoice financing loans to settle cash flow problems that arise from unpaid invoices. However, if your business is a B2C one or if you do not invoice your customers, then this loan is not for you. This small business loan for B2B businesses will help you obtain a cash advance from a lender to help you with outstanding invoices.

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In invoice financing, small businesses can get a percentage usually 85 per cent of their total invoice amount as loan. This loaned amount can be used to cover all the expenses. This loan is a great option for maintaining cash flow if you are invoicing several customers, who play at different times.

Equipment Loans

As implied by the name, this business loan is best suited for small businesses in California and in the US, who need to lease or purchase vehicles and equipment. Equipment loans are one of the most popular asset-based loans that a small business can apply for. You can take this loan to fund the purchase of expensive equipment rather than paying for it outright.

While this loan can be availed by both established and small businesses, it is especially beneficial for new businesses as the equipment itself serves as the collateral for the loan and you do not need to present another asset as collateral.

Commercial Loan from the Government

The Small Business Administration is a government wing that is responsible for processing business loans for small businesses. Here we will learn about some business loans that can be obtained from the government.

SBA Microloans

Small businesses also include micro-businesses and startups that might not require a large capital (>$50,000) from the bank. The SBA micro-loans have been designed for businesses looking for capital up to $50,000. The SBA wing of the government collaborates with community-based nonprofit lenders to pass on these loans.

The micro-loans are basically meant for people looking to launch a startup or people running micro-businesses like vendors, truck operators, and more. The SBA gives out micro-loans for a term of six years.

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SBA 7(a) Loans:

This small business loan is targeted for entrepreneurs who have great credit and need financing for the long-term. This is also the most popular small business loan program and can be used for most business purposes.
The SBA 7(a) is a long-term loan and typically ranges from 10 to 25 years depending on what the loans are being used for.

In Conclusion

These are just some of the small business loans that we have covered in this article. There are many more, catering to the needs and requirements of different types of businesses. However, before applying for a commercial loan, you need to check your credit score, finances, and the duration of time for which you would be needing it. This will narrow your options, allowing you to choose the perfect one and obtain capital for your business.

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