Commercial Loans: Common Types and Sources Getting a loan is among the many challenges of operating a small business. There are entrepreneurs who do need financial help in order to grow their businesses and take care of their daily costs, including payroll and inventory. However, it’s not always easy to get approved for a commercial loan. But knowledge can make everything more manageable. If you’re considering applying for a commercial loan, you can start by knowing your options of providers. such lenders have a whole variety of products, like lines of credit, accounts receivable financing, and term loans. If you know which provider is best for you, you’ll have a better chance of getting that loan. The following are the three major routes to financing available nowadays:
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Typical bank options include term loans, lines of credit and commercial mortgages. The U.S. Small Business Administration, through banks, provides general commercial loans with its 7(a) loan program, disaster loans, and short-term microloans. SBA loans start at around $5,000 and max at about $5 million, where the average loan size is $371,000. Small businesses can have a harder time getting approved because of certain factors, such as lower sales volume and cash reserves. Processing time is usually the longest compared to the two other options – about 2 to 6 months – but banks also offer the least APR. Financial assistance may also be offered by local and state governments, so set a list of financing programs using the SBA’s Loans and Grants Search Tool. 2. Microlenders Nonprofits that often lend short-term loans to a maximum of $35,000 are called microlenders. Microlender loans usually come with a higher APR in comparison to bank loans. Application may be a long process, requiring a detailed business plan, financial statements, and also a description of the loan’s purpose. These loans are mainly intended for smaller businesses or startups that will likely be rejected by banks because of different reasons, like short operating history, lack of collateral or poor personal credit. 3. Alternative Lenders Commercial loans offered by alternative lenders range from $500 to $500,000. These loans’ average APR is 7% to 113%, depending on the loan type and size, length of repayment period, the borrower’s credit history, whether or not collateral is required, and of course, the lender itself. These lenders are competitive with banks when it comes to APR. As soon as you know the type of lender and financing option for you, you want to have two or three options that you can compare based on total borrowing cost or the annual percentage rate and terms. And of course, when you shop for a commercial loan, do it like you would shop for a house. From all the loans you’re qualified for, select the one that has the lowest APR.
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