What Is Commercial Lending All About?
Commercial Lending is when a business borrows money to pay for business expenses, real estate or equipment purchases required to operate or expand. Loans can range from short term funding to long term real estate loans reaching 30 years.
Those who have just opened a new business need to know how to get it going from the ground up; however, it is nearly impossible for the business owner to have the personal resources to go at this venture without help. Millionaires even have to deal with a bank when it comes to putting assets into a newly forming company.
It takes a long time to bring in a profit stream for a new business. Those with businesses cannot simply wait to invest in new supplies or employees as their business grows. For example: A restaurant owner will need all the cooking equipment to function properly before the first night of dinner. This is impossible if the owner does not have the resources to pay for it. One might think the entrepreneur is simply out of luck. It’s easy to get the idea in your head that all business owners, no matter what type of establishment, start out as very wealthy people because it takes a lot of money to get these things going. That is absolutely not the case. They get their business up and running through commercial lending.
What Is Commercial Lending And How Does It Work?
Hard Collateral
The borrower sometimes needs to provide collateral to secure the loan. This provides the bank with an asset in case the loan goes delinquent. While a bank will check the credit score of the applicant, this will not be the only criteria for securing the loan, since commercial loans are of a really high value.
How Is A Commercial Loan Secured?
When it comes to most types of commercial lending, the money is secured by hard collateral. Hard collateral is an asset held by the borrower. For example: If the borrower has a home, the home is put up as collateral and will be taken if the loan is not paid back.
A commercial loan isn’t a good idea for everyone. Those who are not quite sure if they’ll be able to pay back the loan are risking quite a bit considering the way these loans are funded; however, it isn’t as bad as you think. Taking personal property is only done if there was no property for the business or materials and supplies to take away. If a restaurant owner’s restaurant goes under, the bank will foreclose the restaurant property.
A Flexible Way To Get Funding
Commercial funding is one of the most laid back ways to get funding for a business. Other companies require the borrower to wait a specific amount of days, which can take quite a while. They may also have an extremely stringent approval process. Because of the formalities involved with other forms of small business funding, people are using commercial lending to get their money faster.
The Term Of The Loan
Any money you borrow, you will have to pay back. If money is not paid back, you will be denied the right to borrow more by almost any company in almost any situation. Each loan taken out will give you a term of time to pay back the loan. Commercial lending does not allow very long terms like a mortgage. When working with a commercial lender, you will receive a one to five year time span to pay back the loan entirely.
This isn’t to say that the lender will ruin your life if you cannot give them all the loan is worth by the time it is supposed to be due. Typically, the lender will go ahead and extend the loan at the penalty which way layed out in your contract. They will not immediately shut down your business.
What Is Commercial lending used for? Established Businesses Too?
Commercial lending is also used by people who already have established businesses for a variety of reasons. One, those who have a business that’s already established may run into certain situations when they have a higher number of orders they need to fulfill. During seasonal times, such as the holidays, small and large businesses often need to buy a lot of merchandise or other supplies to make the highest profit they possibly can during the seasonal months.
Certain Customers
Businesses have customers of different levels. Some are at the level of making large and frequent purchases, while others make smaller purchases that are less often. Typically, commercial lending is needed to help businesses satisfy those commercial orders of a higher nature. This allows them to still have the funding to fulfill orders that are smaller in nature.
Talk To A Financial Adviser
You may be the world’s greatest chef; however, that does not mean you know about all the financial concerns and money strategies to create a successful business. Most small businesses have a financial advisor in which they have communication. Financial advisers are wonderful for instructing the customer on what to borrow, when and how much.
Those who choose to approach small business funding with no training in finance, but a dream in their heart, are typically the ones who fail and lose their assets. A financial adviser is cheap compared to what one’s company could lose without one. It’s something to consider when you’re trying to decide who to get your funding from.
Loan Commitment
If you’ve been an adult for a while, you know that every loan you’ve ever taken out has required an agreement. Lenders need to know that their money’s secure. While commercial lending is much more flexible than lending you can choose at a traditional bank, there’s still paperwork like anything else in life. The loan commitment is a promise from the bank that they will lend you a certain amount of money or a certain amount of credit.
Do traditional banks do commercial loans?
While there are many lenders who have more flexible terms and only focus on commercial lending, commercial lending can be gotten from a traditional bank. If you choose to take out a commercial loan from a traditional bank, there will be a lot more formality. Some do not mind this as it also ensures that a fair interest rate will be given and there will be a high professional quality out of the employees who are assisting in the loan process.
For some borrowers, it may be harder for them to get commercial lending from a famous bank chain like Chase. Very established banks have extremely high standards when it comes to who they’ll lend to and how much. Go to a less well known commercial lender if you have bad credit or feel that there is something else that may make this option harder.
The Hard Money
As discussed earlier, a lot of commercial lending is based on hard money. Hard money is the type were collateral is needed. Since the process of hard money lending is considered to be rather informal, most mainstream banks won’t engage in it. If you need to get a hard money loan, usually out on your car or home, you may have to search around to find a lender that can help you.
Is It Time For Commercial Lending in your business?
When your asking yourself “What is commercial lending”, you’ll need to do plenty of research to get that single, yet huge question answered. No loan is something that should be taken out lightly. Getting the right loan is a process that requires not only your thought, but the ideas of a professional who is used to dealing with finance. Without others to ask, this is a route that may not reach a positive result.
Commercial lending is a contract. One you’ve entered the contract, there is nothing you can do to back out of besides declaring bankruptcy, which will ruin your credit for many years. Most businesses found that they made a much greater gain in profit through using commercial lending. When it is used properly, it could allow you to expand the business greatly.
Every business needs funding to survive. Is yours in need of a little help at its infancy? No one will throw money in your lap. You’re going to need a lender who you will trust.
