Applying for a Commercial Loan? Here’s What You Need to Know

By the end of 2020, the value of commercial loans at U.S. banks stood at about $2.7 trillion, with commercial real estate loans accounting for around $2.4 trillion of this figure. In California, you can get a commercial loan valued at over $15 million with flexible repayment terms.

Commercial loans are designed to cover capital expenditures (CAPEX) such as asset acquisition, but you can also use the money to cover operating expenses (OPEX) such as rent, insurance, and payroll. Lenders generally categorize these loans based on the intended purpose and repayment duration.

Benefits of Applying for a Commercial Loan

The benefits of commercial loans include, among others:

Diverse options – Lenders offer diverse commercial loan options that satisfy different needs. Commercial real estate loan products support commercial property acquisition. Small Business Administration (SBA) loans fund startup, acquisition, and improvement of small businesses, while the business line of credit loans supplement cash flow, working capital, and your finance receivables. Other popular loan options include equipment loans and term loans.

Lower overhead costs – Commercial loans attract the lowest interest rates of all loan options. In the U.S., commercial loans interest rates range anywhere from 2.5% to 7.0%. Personal bank loans attract a higher interest rate of between 6.6% and 15.3%.

Flexible repayment plans – The typical maximum repayment period for SBA 504 and SBA 7(a) real estate loans in California is 25 years for a typical business loan of $5.5 million and $5 million, respectively. The extended period makes loan repayment less strenuous.

Total business ownership: You retain full ownership/control of your business with a commercial loan, unlike venture capital investors who take over a fraction of your business.

Quick access to funds – Commercial loans generally take a shorter time to process than personal loans. If you have filed an application form, provided the required documents, and agreed on the terms, the lender will approve your loan application in less than 24 hours.

Requirements to Apply for a Commercial Loan

Credit score – Lenders evaluate the personal and business credit scores of loan applicants to assess their character and creditworthiness. These numbers also determine the capital, collateral, capacity, etc., that you will qualify for, once your application gets approved.

Evidence of revenue – Your lender will require evidence of revenue whenever you apply for real estate loans in California. Depending on the lender or the credit union that you are using, you might have to provide certified business account statements.

Proof of collateral – Some lenders will require proof of collateral as security for your commercial loan. These can be easy-to-sell business assets or real estate, etc.

Business plan – Some lenders may require you to submit a business plan with your commercial loan application to better understand your business, why you need the money, and how you will use it if approved.

Loan use documentation – Different lenders have different rules regarding commercial loan use. These stipulate how, when, and where you can use the loan. Most lenders offer lump-sum loans, while others will offer it in installments. As such, you might be required to provide documentation that shows how you plan to use the loan.

How to Secure the Right Commercial Loan for Your Needs

If you need help finding a commercial loan at competitive interest rates, contact our experts at Fidelity Mortgage Lenders today. We provide funds for different types of small and large commercial real estate properties.

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