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.
Takeaway
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.
