About the Commercial Loan Process

A commercial loan can refer to any loan used to fund the operations of a business. This can include real estate, equipment, payroll, advertising and anything else that a business owner is not able to cover out of pocket. In most cases, a commercial loan will involve more money than a personal loan, often in excess of $100,000 and is therefore subject to a more stringent approval process. It is different from a commercial line of credit because the borrower receives a fixed amount of cash up front, which must be repaid on a strict schedule.

Misconceptions

Many people assume that a commercial loan is based solely on the credit rating of your business. In reality, however, lenders will likely take into account the personal credit rating and assets of the individual applying for the loan, even if the official borrower is the business. This is especially true for small businesses and sole proprietorships. During the commercial loan process, lenders may investigate you personally, as well as your business.

Time Frame

The commercial loan process can take anywhere from a few weeks to several months, depending on the size of the loan and the complexity of the lender's investigative efforts. You can shorten the length of time necessary to process the loan by preparing documents in advance, such as financial statements, tax returns, business plans and your letter of intent. If you are in need of money in a shorter time frame, you might alternatively consider a commercial line of credit.

Features

Depending on the lender you choose, the commercial loan process will go through various stages before you receive your money. First, you will need to fill out the initial loan application and furnish the documents requested by the lender.

When your application is approved by a loan officer, it will be submitted for underwriting, and you or your broker will need to negotiate the terms before you can receive your money. All of these stages should be observed carefully and with thorough scrutiny.

Function

The commercial loan process is designed to assess risk factors in borrowers, determine their needs and come up with a reasonable amount of money to lend. This is essential for lenders because, should the borrower default or declare bankruptcy, they lose a significant amount of money. This is why it takes longer than personal loans and may require more documentation. Additionally, this process allows the borrower to carefully consider multiple lenders and choose the most favorable terms and conditions.

Significance

If you are going to be taking out a commercial loan, the process should be understood before you start filling out applications. Knowing when you might receive the money you've requested, and understanding what information will be required of you, will make the process far less painful. For commercial lenders, this process provides an opportunity to get to know borrowers and to make accurate assessments of risk.

Type

The commercial loan process will also vary depending on the type of loan you need. For example, if you plan to buy real estate for business purposes, the loan process will include additional documentation. You'll need to supply things like lease summaries and appraisal letters to help lenders make their decisions. Additionally, loans are dispersed in different ways. Some will be issued by bank draft or cashier's check, while others might be electronically deposited in your bank account.

Expert Insight

The commercial loan process will seem much less scary if you are represented by a broker or attorney. Having a professional in your corner will ensure that you get the most favorable terms and interest rates, and will save you from dealing with a predatory lender. This is particularly important for the closing process, which is when all misunderstandings and final details are ironed out. It is best that the lender and borrower are not represented by the same individuals.

Resources

• How To Find Commercial Loan Referral Programs