In planning to startup a business, working capital is the most crucial thing that you should have in order to fund your business idea from operation costs and payrolls to purchasing supplies and real estate acquisition.
However, most of the entrepreneurs lack the essential cash on hand to cover these expenses.
Good thing there are institutions, banks, and lenders who are willing to give these business owners a hand to finance their ideas — in the form of loans. A commercial loan, in particular, is one of the funding options that can help entrepreneurs to build their startup businesses.
With that said, let’s learn more about this type of loan and determine whether or not it’s the best option for you.
What is a Commercial Loan?
Commercial loans are a small business loan that is designed to assist businesses — particularly the startups — that need a working capital boost to cover their everyday expenses and or operational costs. Moreover, it is a debt-based financing arrangement between a financial institution and a business entity.
This type of loan is nearly the same as a personal loan with a few primary differences, including:
- While personal loans are granted to an individual, commercial loans, on the other hand, are given to a business.
- With commercial loans, the lender will consider your business’s earning history, credit history, projected revenues, and other criteria to determine whether or not you qualify for a loan. With personal loans, on the one hand, the lender will analyze the personal credit, debt, and income of the borrower to know if he or she makes a good candidate for a loan.
Benefits of Commercial Loans
If you’re looking for an effective financing solution to deal with your business expenses, a commercial loan is what you need. This type of funding can help you cover up anything from equipment and stocks to payroll and liabilities. Besides that, there are also numerous benefits entrepreneurs can get out of a commercial loan. These include:
- Commercial loans offer a low-interest rate. Compared to other loan options, commercial loans offer the lowest interest rate that enables entrepreneurs to access critical financing while maintaining lower overhead costs.
- Commercial loans can be used for an enormous sum. Since this type of loan can be a significant amount of money, it allows business owners to cover the huge startup costs with only a single loan.
- Commercial loans provide the most cost-effective loan option for entrepreneurs. With flexible long-term payment strategy and lower interest rates, commercial loans are the most cost-effective loan option for the business owners. Although eligibility can be challenging, commercial loans are often the best solution for acquiring a startup capital.
- Commercial loans are often unsecured. It means you don’t need to provide any collaterals such as equipment or property to get the loan.
How Commercial Loan Works for Startups
A commercial loan is one of the funding options you may use to startup your business. This loan is granted to a variety of business entities and typically assists with short-term financing needs for operational cost or purchasing of equipment to expedite the operating progress.
Aside from that, commercial loans can also help your startup business to meet other basic needs such as payroll and purchase of supplies that are necessary for the production and manufacturing process.
Securing a Commercial Loan
Applying for and getting a commercial loan is a bit challenging, especially for entrepreneurs who are just starting up a business.
In most cases, if you are planning to apply for this kind of loan, you will be required to present documentation in the form of necessary financial documents such as balance sheets and or other related documents. It will serve as proof that your business has a favorable and consistent cash flow, which will also assure the lenders that you can pay off the loan according to the given terms.
Moreover, if you have been approved for a commercial loan, you can expect to pay an interest rate that conforms with the prime lending rate at the moment the loan was issued.
Financial institutions generally require monthly financial statements from your company throughout the loan. They often ask you to take out insurance on the significant purchased item using the money from the loan, such as equipment and real estate.
Starting up a business can be a daunting task, especially if you don’t have enough working capital to fund your business’ operational costs and other necessary expenses. If this is your case, you can apply for a commercial loan to make your startup ideas happen.
The things mentioned above might help you determine whether or not it’s a good idea to acquire a commercial loan to fund your business. Moreover, If you want to understand more about the application process, you can always ask a commercial broker to help you from start to finish.