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Commercial Business Loans Tailored to Your Needs

by Mike Abelson   December 29, 2020
Starting a new business can be challenging in many ways, especially financially. Find the best business loans that fit your financial needs.
Loan Advice

Recent research from the Bureau of Labor Statistics suggests that nearly 20% of new small businesses fail within their first two years of operation. BLS estimates the small business failure rate to be 45% and 65% in the first five and ten years, respectively. This means that most businesses will not survive past ten years. In fact, only 25% reach the age of 15.

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While the financial collapse of your small business is not inevitable, the odds of success are certainly not in your favor. One of the most common reasons why so many businesses fail is a lack of finances. Too many expenditures at once can topple you into the red. At the same time, not making essential business-saving decisions can lead to failure.

In order for your small business to thrive, you will need to make careful, informed financial decisions. Below is a resource guide to help you connect with possible financing options and determine which types of commercial business loans are the best for your business.

Woman working on laptop in her small business.

Commercial Business Loans at a Glance

●       Traditional loan product

●       Short-term with the possibility of rollover

●       Offered through commercial banks

●       Unsecured

●       Applicable for capital expenditures and operating expenses

●       Must provide financial statements to the provider to qualify for a loan

Main Advantages

Commercial business loans are a good option for business owners seeking funds to cover capital expenditures (vehicles, computers, equipment, licenses, land, buildings, etc.) or operating expenses (wages, rent, utilities, marketing/advertising, repairs, travel, etc.). You can fund all of this, often at the lowest possible interest rate for any business loan. Because commercial loans can be applied to so many costs, they are ideal for start-ups who need to cover a range of expenses, from utilities to marketing. Most commercial loans are used for short-term purchases.

Disadvantages

Disadvantage of business loans.

Like any loan product, commercial business loans require good to excellent credit. If you have no credit, bad credit, or are a first-time business owner, you may not qualify. Though commercial loans are short-term, they are not quickly accessible. They are not the same as short-term business loans.

The majority of borrowers receive their loan in three to six weeks; however, a commercial loan may take anywhere from one week up to two months to be processed. If you're strapped for cash and need a quick fix, this may not be what you're looking for. Typically, a rather detailed business plan and a solid sales pitch are required to obtain these loans. When applying, your goal is to convince the bank that you are a trustworthy individual with a high-potential business. The bank must be assured that you will not default. You will need to provide your personal information, including your credit history. If this is not something you are willing to do, you will have to look elsewhere. While most commercial business loans are unsecured, you may be given the option to secure the loan with personal assets such as your vehicle or house at the bank's discretion. If you choose to accept a secured loan, you consent to the bank's right to seize ownership of the personal property offered as collateral. In some cases, you may be able to offer up cash flow from accounts receivable as collateral as well.

How do Commercial Loans Work?

Commercial business loans are typically made available through traditional lenders such as banks or credit unions. The first step to obtaining a commercial loan is to contact such an institution. There are several commercial business loan requirements. To begin the process, you will need to provide several financial documents, including:

●       Tax returns for the past two to three years

●       Monthly finance statements

●       Accounts receivable and payable

●       Legal documents such as franchising agreement, proof of ownership, commercial lease, etc.

You may also be required to offer up collateral. At the time of application, you will likely be asked to present a detailed business plan. You should be prepared to explain why you need the funds, how you will spend them, and how you will pay them back.

Commercial business loans are, by default, short-term. However, some lenders will allow you to refinance or rollover the loan for as long as you need to.

Which Bank is Best for Commercial Loans?

Which bank is best for commercial loans?

Most commercial banks carry loan products for small business owners. It's always worthwhile to shop around for the best rates and terms you can get. Here are just a few national banks known for offering desirable commercial loans to small businesses.

1. Wells Fargo

Wells Fargo is an excellent choice for any small business owner. They market themselves heavily towards business owners and offer more than a few commercial business loans and small business resources. You can choose from unsecured loans and lines of credit, depending on what works best for you. Wells Fargo offers everything from real estate to capital finance, with many more options in-between.

2. Union Bank

Union Bank is similarly praised for its benefit to small businesses. They work quickly to get you your loan; you may be approved for up to $250,000 within 48 hours of applying.

Their term loans allow you to borrow up to $1 million, with a 12 to 84 months repayment period. Commercial loans from Union Bank have fixed interest rates attached to them. In addition to regular term loans, they offer business lines of credit and equipment financing.

3. JPMorgan Chase

JPMorgan Chase is another good contender for your business loan needs. While they don't issue as many loans to small businesses as Wells Fargo and Union Bank do, they offer a well-regarded selection of business credit cards as an alternative to a loan.

Business Credit Cards

Small business owners looking for credit cards for their business have the option to get a small business credit card or a small business line of credit.

Small Business Credit Card:

When in need of funding, businesses can apply for a small business credit card. These cards are known for racking up points and rewards with each use making them ideal for small businesses that regularly make small purchases. However, credit card interest rates can be high.

Most small business credit cards have a limit of $100,000. With a cap of $100,000 on the card, it may not be ideal for large purchases. It is also wise for business owners to check whether a vendor they work with will accept credit cards because some vendors may not.

Small Business Line of Credit:

Business lines of credit work the same way that personal credit cards do. With a small business line of credit, business owners can get access to funds ranging from $1,000 to $1 million. However, borrowers need to have an exceptional credit score to open a line of renewable credit of up to $1 million.

A small business owner can pay back the funds in six months or up to 20 years. The average interest rate varies from 7% to 36%. This makes it hard for business owners to finance business equipment, and the lines of credit can be drawn for when funds are needed. However, borrowers are not required to pay interest when they are not using it.

When applying for a small business line of credit, the lender will decide how much money the borrower can access through their line of credit.

Commercial Loans That Small Business Owners Can Request

People shaking hands as a business transaction takes place.

Small business owners looking for funding have come to the right place. Most of the time, business owners find a product that meets their needs on Lendza.com. Below are all the products that Lendza offers that fall under the category of commercial loans.

Accounts Receivable Financing

Small business owners who are waiting on money from a client can apply for accounts receivable financing. Accounts receivable financing can help business owners fill cash flow gaps until the clients pay what they owe.

Business owners use their invoices as collateral for business funding.

Usually, business owners get funding of up to 80% of the amount the clients own them. The interest rate may be lower compared to other types of business financing, the rate ranging from 5% to 12%.

Generally, the funding term is up to 90 days.

Small Business Acquisition Loan

A business acquisition loan may help business owners to start a new business or purchase an existing franchise. Business owners can receive funding ranging from $5,000 to $5 million based on their needs and qualifications.

To qualify for a business acquisition loan, business owners must have at least two years of experience in the field, solid credit history, and collateral. Most of the time, the company's assets are used as collateral.

Business acquisition loan's interest rates range between 4.75% to 6%. Small business owners can pay back the borrowed amount in up to 25 years.

Microloan

Microloans are small low-interest loans targeted towards startups and small businesses in need of extra capital. With microloans, small business owners can borrow up to $50,000 and must offer collateral as a personal guarantee of repayment.

The time it takes to get funded through a microloan is two months, relatively longer than other funding options. However, the interest rate is usually much lower, ranging from 8% to 13%.

The term of a microloan is up to 6 years.

Short-Term Business Loan

Many small business owners apply for a short-term business loan when they need money urgently and bridge the gaps between business cash flow. This type of business financing is funded faster than other types of business financing. Most of the time, business owners receive their funds in 7 days upon offering collateral.

Borrowers can request up to $250,000 with the interest rate varying from 8% to 60%. Small business owners can pay the loan back in up to 5 years.

Startup Loans

Small business startup loans are designed to give young companies working capital because sometimes it may not require the typical two-year financial history record that other types of funding ask for. Startup loans can range anywhere from $500 to $750,000, and the term can stretch from one year up to five years. Interest rates vary from 8% to 17%, and the funding process takes around two weeks.

Traditional Business Funding

Traditional-term business financing can work for different businesses. A traditional business loan is for companies that want a specific amount of money at a set rate, paid back over a fixed term. Business owners can use the loan to fund anything from equipment purchases to business acquisitions to construction.

Usually, this type of funding is designed for well-established businesses that have a strong financial history. To get a traditional business loan, business owners may have to offer collateral before qualifying for a loan.

The maximum loan amount that business owners can borrow is $500,000. They can pay back the loan in up to five years. The interest rate varies from 7% to 30%. Borrowers will receive the funds in up to seven days.

Equipment Financing

As the name states, equipment loans supply borrowers with the necessary funds to purchase new business equipment. When borrowing an equipment loan, business owners use their old equipment as collateral.

The maximum equipment loan amount is $5 million. Business owners can pay back the loan in up to 6 years. The interest rate ranges between 7.5% and 45%. Business owners may receive the funds in as soon as a couple of business days.

Commercial Real Estate Financing

Commercial real estate loans are borrowed to fund different types of projects. The funding amount depends on the value of the commercial real estate used as collateral. Usually, commercial real estate loans can range from $150,000 to $5 million. Business owners can pay back the borrowed amount in 20 to 25 years. The interest rate for commercial real estate loans is around 4.25% to 6%. Borrowers may receive the funds from 30 to 60 days.

Merchant Cash Advances

When getting a merchant cash advance, business owners are borrowing against their future earnings. The maximum funding amount is up to $200,000. Once business owners earn money through credit card sales, a portion of the sale is automatically deducted to pay off the advance. Hence, the loan term is determined by how long it takes for the borrower to make enough money to pay back the loan and fees. For some lenders, the term of the loan is around nine months. Unlike other funding types, the fees for a merchant cash advance is determined with a “factor rate.” The factor rate is around 1.14 to 1.48.

There are other ways that commercial companies can borrow money. However, these are the main loan types. If you are interested in requesting a loan for your small business, you can get started right here.

Mike Abelson   Editorial Director
Digital Marketing
Mike is the Editorial Director at Lendza. He enjoys helping entrepreneurs and startups succeed through smart, innovative strategies. He’s partnered with CEOs and executives to grow businesses from the ground up. Before his work at Lendza, Mike was a stock market analyst. When he’s not traveling for work, he enjoys reading adventure and science fiction novels.