Whether you’re trying to grow a small business or looking into a commercial real estate venture, a commercial loan could be an essential piece of the puzzle. Commercial loans are pretty much any kind of loan that is used to finance a business and help it grow. These loans can be used to finance many different parts of a business, from payroll to workspace. Here are some basics that you should know before you apply for one:
Not all commercial loans are the same
The term “commercial loan” can describe a broad range of different types of loans. Lenders may have different expectations and will lay out their loans in different formats. Some loans are designed for specific areas, like CDC loans, which are meant for non-profit organisations. Others vary in their timeline, although most are around five years, or limit what money can be spent on. Doing research and finding the type of commercial loan that makes the most sense for you is key.
Be ready with collateral
Commercial lenders often look for something from you that they can hold for the duration of your loan. This collateral will be returned to you as long as you don’t default on your loan. Some examples of collateral include money, real estate or a personal guarantee from an individual who will pay the rest of the loan should your business default.
A commercial loan is still possible even if you have bad credit
If you have a bad credit score it doesn’t have to be a deal breaker. Many lenders will be willing to work with you and create reasonable criteria that can work for both parties. Be honest with lenders, since almost all will down their own credit check.
…But your rates will probably be higher
Because of your bad credit score, lenders will be more likely to see you as being a greater risk of not being able to pay your loans. As a result, your rates will most likely be higher than average. The lender may also impose a stricter limit on the amount of money that you can borrow. Being able to consistently meet your payments, even with a higher rate, could potentially help you lower your credit score in the long term.
If you have any further questions about commercial loans, contact us today!