Line-of-Credit Loans:
This type of loan is not meant for business expansion but rather as an emergency fund. As needed, you can borrow up to your credit limit – but if you miss payments or go over the limit, it will hurt your credit score. Often there’s a flat fee associated with this type of loan.
Commercial Real Estate Loan:
These loans are specifically made to buy commercial real estate. They will be paid back in equal monthly payments according to the loan terms and not include principal and interest as with a term or line-of-credit loan. This means you can use the principal portion of your payment to pay off the principal. However, it is up to you to figure out how much that portion should be each month.
Small Business Administration Loans:
The SBA (Small Business Administration) is an agency of the Federal Government. The SBA exists to help small businesses grow, and they make it easier for smaller banks to lend money. For example, you can use their government-backed loans to expand your business or purchase real estate. These are longer-term loans with fixed interest rates, requiring less documentation – however, you will need a credit score of at least 500 to qualify for them.
In general, commercial lenders want the same thing from anyone who walks in looking for a loan: solid financial history and personal solid credit scores. Most won’t even consider giving you a loan if both don’t check out. Suppose you’re going through this process solo instead of working with a bank or other large financial institution. In that case, you’ll need to be able to prove (with documentation) that your business idea is sound and that it will succeed.
In addition, there are other types of loans that may or may not apply to you: