Commercial loans

Introduction

Borrowing money is something that almost every person will do at some point in their lives.  Many people have huge debts that they need to pay off and others are very responsible with it.  Some people have personal debt and other business debt to help them make money and improve the economy.  Borrowing money for commercial reasons, like running a business, can be complicated and involve a lot of different things.  Here is some information that will help you understand better what is involved with commercial loans and how to go about getting them. 

Many people are familiar with the process involved with getting a personal loan like a home mortgage, but the process for getting a business loan is different in many ways to a mortgage.  Commercial loans are not backed up by a government institution like Fannie Mae, like many mortgages are, but commercial lenders.  These lenders don't like risk as much as aggressive lenders who give out personal loans and commercial lenders are willing to pass up clients for the security that everyone they do work with is going to be worth the time, effort and risk involved.  Some commercial lenders charge very interest rates to encourage earlier payment or require shorter terms on loans.  They may also look in great detail at the person who is going to get the loan and also at the property that will act as collateral to the loan.  So you should have very different expectations when it comes to getting a loan for commercial and business reasons. 

Contacting a loan officer to get a commercial loan

One of the best choices of people to contact to get a commercial loan is going to be a commercial loan officer or commercial broker.  For many businesses, the only way to start operations is to get a loan and there has been an industry developed to provide this need to business owners and entrepreneurs.  Loan officers look for and find potential clients and help them through the loan application and funding process.  These people gather information to make certain that the decision made is based on facts and reliable information.  Loan officers can also offer advice to those wanting to borrow money that may not be able to qualify through conventional streams as to other methods of getting the money they need for their business.  They can help determine what would be the best type of loan for a person or business depending on the objectives of the business and the industry it is in.  The loan application process can also be very complicated and stressful, so loan officers are there to help them fill out all the paperwork properly and provide all the information that is needed for the lender to make the best decision too.  The loan officer will also be responsible for some analysis and evaluation of the information gathered to help determine the best options for the potential borrower.  This analysis can involve credit reports and checks and even evaluating financial statements of the company to determine creditworthiness.  Sometimes loan officers are acting as salespeople for the lender or the broker that they may work for and are actively looking for businesses who may want or need extra money to expand or improve their operations. 

Advantages and disadvantages

Getting a loan to finance your business or to obtain commercial property has several advantages and disadvantages.  One of the main advantages of getting a loan for a property is that you retain ownership of the property.  You are not required to share the property or a say in how it is used or managed with an investor who may not understand everything about your business.  The lender is the only other person who has any kind of stake in the property because they are technically the ones who really own it anyway until it is paid off and you don't have to pay them a portion of profits from the business like you would have to pay a shareholder or investor.  This is one of the main reasons why business owners get commercial loans - they want to remain the business owner.  There is also the tax advantage of having the interest paid on a commercial mortgage deducted or paid with pre tax money.  A commercial loan will also provide for more cash flow which in and of itself can help a business do better.  It gives you access to capital and resources that would normally not be available to you and you are able to be somewhat flexible in your repayment terms.  Your cash flow management will also become more simplified because mortgages are pre set and managing finances is easier to do when you are expecting something to happen.  Having commercial loans also gives you more financial flexibility for your business and allows you to make more of the strategic decisions that will really affect your business.  When you get a commercial loan for a property or for other equipment used for you business you are the borrower and the legal owner of the equipment or property.  You are not renting from someone else or making payments of the equipment on someone else's schedule.  You are also able to maximize your financial leverage when you have a commercial loan.  You can refinance many of your assets, real estate, equipment, and vehicles to meet the needs of your business and free up cash for operations. 

The nature of a commercial loan or mortgage requires that you have some sort of collateral to be used to secure the loan or debt.  This is often the property that you do business in or another asset of the company.  If the financial situation of the company becomes dire and the collateral for the mortgage is the place where you do business, if you default on the loan then the lender has the right to take the property from you and you will no longer have a place to conduct business which can completely ruin any kind of business.  You should be sure and make sure that when the mortgage is paid that they lender is required to release the property as collateral for the loan.  The lender can also declare a person or business to be in default on a loan.  These can include making late payments or not paying, bankruptcy, insolvency or breaches of contracts and agreements in the mortgage agreement.  Depending on how good a credit score your company has you may be required to provide additional guarantees that you will repay the money borrowed.  This could involve putting up other assets as collateral for the loan you want to get. 

Cautions

In general, there are risks associated with every type of loan and you should expect to assume some of these risks as a business owner.  You should make the decisions about loans based on good research and due diligence so that it will really be the best for your business or commercial ventures and make sense financially.  You should never try to get money just because it would be nice to have more available to you (and you probably wouldn't be able to get it anyway).  You should also be cautious of online schemes to take advantage of people and put them in a bad financial situation personally or from a business standpoint.  Keep your eyes peeled for anything that looks too good to be true. 

What to expect

When you choose to assume any kind of debt you should have a solid plan in place to assure that you will be able to repay it when it is due or before.  You should have planned in advance how you are going to meet the repayment terms and make your payments each month.  This will also be involved in the qualification process and lenders will likely have you prove that you will be able to make the required payments on time and regularly.  You can probably expect your loan to have some sort of balloon payment that will come due all at one time before the term on the loan is actually arrived.  You should also evaluate how much money you are going to borrow and make the wisest decisions about the money to be used.  Don't get more money just because you can if you don't have a specific plan for it that will benefit your business.  You should also expect to come up with a hefty down payment on the loan you plan on securing so that they company lending you the money will be assured you plan on repaying the debt.  You should expect the loan application and qualification process to take quite a while, especially when large sums of money are going to be involved.  The lender wants to make sure that they money they are providing to you will be used well and will be repaid later with interest to their shareholders or investors.  The process can take several weeks before they even make a commitment to fund a loan and then it takes more time to finalize everything.  Sometimes things will not go as planned and you will have to start the whole process over with a different lender or bank who will be evaluating the situation differently and need different information.