Commercial lending is the practice of lending money to businesses for various purposes such as purchasing new equipment, expanding operations, or funding working capital needs. Commercial lending plays a crucial role in the growth of businesses as it provides them with the necessary financial resources to achieve their goals. In this blog, we will explore the different types of commercial lending and the process of obtaining commercial loans.

Types of Commercial Lending

Traditional Bank Loans: These are loans that are issued by traditional banks and financial institutions. They typically require collateral and a good credit score, and the interest rates and terms are dependent on the borrower's creditworthiness. These loans can be either secured or unsecured and can have fixed or variable interest rates.

SBA Loans: The Small Business Administration (SBA) provides loans to small businesses through its lending partners. These loans are guaranteed by the SBA, which makes them less risky for lenders. SBA loans can be used for various purposes, such as purchasing real estate or equipment, and they offer lower interest rates and longer repayment terms than traditional bank loans.

Invoice Financing: Invoice financing is a type of lending that allows businesses to receive cash for their outstanding invoices. This type of lending is popular among businesses that have long payment cycles, as it provides them with the necessary cash flow to cover their expenses.

Asset-Based Lending: Asset-based lending is a type of lending that is secured by the borrower's assets, such as inventory, equipment, or accounts receivable. This type of lending is suitable for businesses that have valuable assets but may have a lower credit score.

The Commercial Lending Process

Application: The first step in obtaining a commercial loan is to submit an application to a lender. The application will typically require information about the business, such as its financial statements, tax returns, and credit history.

Underwriting: The lender will review the application and assess the borrower's creditworthiness. This process may involve requesting additional documentation or conducting a site visit.

Approval: If the lender determines that the borrower meets their lending criteria, they will issue a letter of intent outlining the terms of the loan.

Closing: Once the borrower accepts the terms of the loan, they will need to provide additional documentation and sign the loan agreement. The lender will then disburse the funds to the borrower.

Conclusion

Commercial lending is an essential tool for businesses to achieve their goals and grow. There are different types of commercial lending available, each with its own set of requirements and benefits. The commercial lending process can be complex, but by understanding the different types of lending and the lending process, businesses can make informed decisions about their financing needs. Click here to apply today!