Commercial loans are somewhat different than your home mortgage, car loan, or credit card debt.
As a result, you might go into it with some common misconceptions. Here is what you need to keep in mind when preparing for the process of applying for and receiving commercial financing:
The first thing most people will notice about taking out a commercial loan is that the documentation required is quite extensive. Just like requiring more documentation for international adoption than domestic, lenders want to make sure they are lending their money wisely (this isn’t the only reason, but certainly one of them). Therefore, the rules are more stringent for commercial loans than mortgages or other personal debt.
Sensing a greater risk, lenders will expect you to provide proof of the following items before they commit to funding your loan:
- The lender wants proof that you have invested time and effort into researching this business idea, that the financial projections are sound, that other aspects (like product quality) are in place. They want to do their job right, asking for information about jobs created, market research conducted, etc.
- Let’s say you have applied at five different banks, and one says “yes.” First, of course, you should expect negotiations before any paperwork is signed. This is not unusual – it happens all the time with businesses large and small around the world. Banks will look at the numbers and ask for discounts, put limits on your borrowing ability, or some combination of both. It’s their job to scrutinize every aspect of this business idea and decide if they want to lend you money based on that (and many other factors).
What Are The Different Types Of Commercial Loans?
There are several types of commercial loans, each with a different purpose and repayment plan:
Money that is paid out in a set amount of time. This can be one year to 15 years, up to 30 years. The term loan will have a payment schedule that includes principal and interest.