Exploring Common Types and Providers of Commercial Loans
Among the various challenges associated with running a small business is securing a loan. Some entrepreneurs do need outside help with financing so they can grow their businesses and pay for their day-to-day costs, including inventory and payroll. However, getting approved for commercial loans is not always easy. But knowledge can always make things a lot more manageable.
If you’re planning to apply for a commercial loan, you can begin by knowing your source options. such lenders have a whole variety of products, like lines of credit, accounts receivable financing, and term loans. If you know which provider is best for you, you’ll have a better chance of getting that loan.
The following are the three major routes to financing available nowadays:
Typical bank options include term loans, lines of credit and commercial mortgages. The U.S. Small Business Administration, through banks, provides general commercial loans with its 7(a) loan program, disaster loans, and short-term microloans. SBA loans can go from a minimum of around $5,000 to a maximum of about $5 million, with a $371,000 average loan size. Small businesses usually have a tougher time getting loans because of such factors as low cash reserves and sales volume. While processing time takes about 2 to 6 months – the longest compared to the other options – banks usually offer the lowest APR. State and local governments may also provide financial assistance, so it’s good to check out the SBA’s Loans and Grants Search Tool to look for financing programs.
Microlenders are nonprofits that usually lend short-term loans up to $35,000. Microlender loans usually come with a higher APR in comparison to bank loans. Application may be a long process, requiring a detailed business plan, financial statements, and also a description of the loan’s purpose. These loans are mainly intended for smaller businesses or startups that will likely be rejected by banks because of different reasons, like short operating history, lack of collateral or poor personal credit.
3. Alternative Lenders
Commercial loans offered by alternative lenders range from $500 to $500,000. Average APR for these loans is 7% – 113%, depending on such factors as the lender, loan size and type, length of repayment term, whether or not there should be collateral, and the borrower’s credit history. When it comes to APR, these lenders can be competitive with banks.
The moment you know the lender type and financing option that suit you the most, you want to have two or three options you can compare based on total borrowing cost or annual percentage rate and terms. And of course, when you shop for a commercial loan, do it like you would shop for a house. From all the loans you’re qualified for, select the one that has the lowest APR.
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