If you’ve never had to borrow money for your business, you may find yourself frustrated at what it takes to be approved for and receive financing. No matter what kind of commercial loan you need, the process is quite different from getting a personal loan or line of credit. Learn more about the process of buying commercial loans to prepare yourself and your business for success.
The first thing you need to know about commercial loans is that a great deal of commercial lenders are adverse to risk, which is why they usually charge borrowers more in interest. You also shouldn’t be surprised if your business and business property are placed under a microscope throughout the course of securing funding. Be sure your commercial property is ready to be put up as collateral for your loan.
How Much Should You Borrow?
While trying to decide how much you should borrow, it’s best that you determine how much you need to meet your current business needs or how much you need to leverage your commercial real estate investments. You should also have anywhere between 20 and 25% for your down payment, but there are some non-traditional loans that allow for a smaller down payment.
Before approving you for a loan, commercial lenders often need between three and five years’ worth of:
- Income tax returns
- Asset statements
- Financial statements
- Your personal financial records
Ask potential lenders what specific documentation they need and how long the loan approval and funding process will take.
Receiving Your Funding
Once you turn in your paperwork and start the loan approval process, expect to wait several weeks before you receive a commitment letter. You should also know there’s a chance the bank’s credit committee may veto your loan even after you’ve received your letter, so it’s always best to have a backup plan.
Before you sign papers for a commercial loan, make sure you understand exactly what you’re agreeing to, ask if there are any hidden costs, and learn the loan’s conditions and covenants. Most important of all, give yourself plenty of time to secure funding.