commercial loans

Common Questions About Commercial Loans

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November 12, 2019

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Running a business is hard work. There are countless things that can impact one’s financials. Whether you’re experiencing a slow period or are scaling your operations, cash is crucial to keeping everything running properly. At Associates Home Loans we offer commercial loan options to help business owners recognize their potential.

Who Can Apply for a Commercial Loan?

Commercial loans are only for businesses. Most businesses can apply for a commercial loan as long as they are able to provide the necessary documentation and choose the appropriate commercial loan for your goals. If you’re unsure of whether you’re eligible for a commercial loan, don’t hesitate to give us a call at 813-774-4285.

What Can You Use a Commercial Loan For?

Commercial loans are expected to be used to help grow a business. Funds can be put towards equipment, working capital, real estate acquisition, and more, depending on the type of commercial loan your receive and your lending agreement.

Can Commercial Loans Be Used for Personal Purposes?

Commercial loans have strict requirements surrounding their use. While some can be used for payroll and others for real estate, per se, no commercial loans should be used to pay for personal purchases or to cover personal debts like a mortgage payment.

What Information Do You Need to Apply for a Commercial Loan?

When you’re applying for a commercial loan, there are two types of information that may be relevant: business financials (including financial forecasts) and personal financials. How much and which documents of either is needed will depend on the type of business you run and who is doing the lending.

For example, if you’re running a consulting firm as a sole proprietor, you will likely need to provide information about your business’s income, expenses, assets, and debts as well as your own personal finances.

If you’re the CFO of a corporation, the personal information necessary for a commercial loan application may be limited to just biographical information for the company’s principal actors, which can generally be found in a business plan.

In addition, to financial information, you may also need to provide collateral for a loan to help secure it.

What Can Be Used as Collateral for a Business Loan?

If you’re required to put down collateral on your loan, you may choose between a variety of business assets, including equipment, buildings, vehicles, inventory, and your accounts receivable. Which can be used may depend on their assessed value and your lender’s requirements.

Can You Use a Commercial Loan to Start a Business?

Often, commercial loans aren’t the best loan to start a business, especially for a new business owner. To receive a business loan, you frequently need to show business financial information, including forecasts. However, traditional lenders are reticent to support new businesses, preferring to lend to individuals who have already shown they are invested in their business.

How Much Can I Borrow With a Commercial Loan?

The amount you’re eligible to borrow will depend on the unique financial position of your business and your goals.

Loan amounts can vary depending on the type of loan, the purpose of the loan (to purchase property, function as working capital, etc.), your business valuation, the value of your collateral, and other factors. For example, a commercial real estate loan will likely be larger than a short-term business loan.

When Must I Pay Back a Commercial Loan?

Your commercial loan term will be determined by the lender. Traditional commercial loans require repayment within 1 to 5 years, while short-term loans require repayment within 3 to 18 months.

SBA Loans, which are popular because they are partially backed by the government, have longer terms, up to 25 years.

If you’re hoping to get an equipment loan, you can expect a repayment term between 1 to 5 years. Commercial real estate loans, on the other hand, have repayment terms more similar to regular mortgages, around 20 to 25 years.

Is a Business Line of Credit a Type of Loan?

Having access to working capital can be crucial to maintaining operations during slower periods, ramping up production for key sales months, powering business growth. A business line of credit can help support businesses that find themselves strapped for cash.

A business line of credit is a special type of loan where you have access to working capital and are only required to pay back what you use. Essentially, it can be used like a bank account as long as what it pays for are within the terms of your loan.

Can I Get a Business Loan from the Government?

SBA (Small Business Administration) loans are very popular, but there is some confusion surrounding them.

The US Government does not provide loans to businesses.

Rather, the SBA guarantees loans to eligible businesses. Businesses who are interested in securing an SBA loan must find an SBA-approved lender.  Because the SBA guarantees up to 85% of an SBA loan, there can be more restrictions on this type of loan. In addition, more paperwork may be required. Want to learn more? Contact us!

What Kind of Rate Can I Expect?

As with all loans and loan details, the rate you can expect on a commercial loan will depend on your unique financial position. Commercial loans can vary a lot depending on the type of loan you’d like. Some loans can start at a low rate of 5%, while others have a rate of around 30%. To know what rate you may be given, apply now!

Need Business Financing? Apply Now!

At Associates Home Loans, we don’t just help homeowners. We’re also committed to assisting business owners as they strive to scale their operations. If you’re encountering financial roadblocks that are limiting your business growth, contact us today. We can help you determine which type of commercial loan may be appropriate for your business. While we hope this information has been helpful, the best way to learn about commercial loans and determine which one may work best for your company is to speak to our commercial lending professionals.

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