If you are planning to expand your business or just need to cover some daily working capital, a commercial loan may be the best solution. But a commercial loan has many requirements and not everyone will qualify. Since the recession, lenders have become stricter when it comes to loan applications. But there are things you can do to increase your chances of getting approved.
Determine Why You Need a Commercial Loan
If you have a clear understanding of what a commercial loan is and why you need it, you will have better chances of securing the loan. If you can specifically say why you need this loan, the entire application process will be easier.
Emergency Expenses or Unexpected Opportunities
One of the reasons you might need a commercial loan for your small business is to cover some unexpected expenses. This could be an emergency expense or an unforeseen business opportunity. If there is an opportunity for your business to grow that would require additional capital and you don’t have it on hand, you can still grab that opportunity with a commercial loan.
Stabilizing Cash Flow
You might also want to stabilize your cash flow or working capital. This is more common for those with seasonal businesses. After a low season, you might need an extra boost to prepare for the busy season. The extra capital will help you buy new inventory, hire more staff, and pay for other expenses.
Growing a Startup
A commercial loan can also help you grow a startup. If you are at the point where you are ready to purchase new equipment, build a better website, etc., a loan may be the right solution.
Know the Types of Commercial Loans and Lenders
Now that you’ve determined why you absolutely need this commercial loan, you need to educate yourself with the types of commercial loans and what lenders are out there. This will help you and the lender decide which one meets your needs.
Term Loan or Traditional Loan
A term loan is a lump sum loan that you need to pay back within a period of time. You will need to make fixed payments until you complete the amount. Traditional term loans are offered by traditional banks and they can be difficult to obtain because they have the lowest rates and you need to be highly qualified for them.
Shorter Term Loans
There is also the medium term loan offered by non-traditional banks. The amounts are often smaller but it is easier to get approved. Short term loans are the smallest and shortest types of loans and are the easiest to obtain. These two are great for businesses that would like to address an emergency or an unexpected opportunity.
There are definitely more types of commercial loans, but these should give you an idea. Make sure to read about them before you even apply and talk to a banker or representative to discuss which one might suit your business best.
Qualifying for a Commercial Loan
Now you just need to qualify for your preferred type of commercial loan. This will vary from lender to lender.
Your credit score will matter a lot when lenders decide which type of commercial loan to give you. It measures your reliability with your finances so before you apply, request a credit report. If your score is below 650, you might want to consider applying for shorter term loans to get easier approval.
If your time in business is longer, you also have greater chances of securing a commercial loan. Your annual revenue also comes into play. Get all this information ready and the entire loan application process will be smoother.
Another thing to consider are legal issues. Lenders may not be very enthusiastic to approve loans to businesses who have pending legal cases. If your business is in the medical field in Indianapolis and you have legal issues, you should seek help from an Indianapolis medical error law firm.
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