The best commercial loan option for you will depend on your unique business requirements and financial situation. Here are the main distinctions between the various commercial loan types so you can choose the one that’s right for you:
- Commercial real estate loans are the most suitable for individuals or companies that want or need to purchase or refinance commercial real estate for investment or to occupy it for it’s existing business. The loan is typically secured by a mortgage, with the collateral being the property.
- The SBA 507 loan is ideal for small businesses that need to refinance their current debt. The SBA sets the conditions for the loan, which has a $5 million maximum loan amount.
- The SBA 7(a) loan is a flexible loan that can be used for a variety of business needs, including working capital, equipment purchases, and real estate acquisition. The best candidates for this loan are small businesses that require a flexible general-purpose loan.
- The SBA 504 loan is a loan program provided by the Small Business Administration (SBA) that offers long-term, fixed-rate financing for the purchase of fixed assets, such as real estate, machinery, or equipment. By giving them access to long-term, affordable capital, the SBA 504 loan program is intended to support small businesses in growing and expanding.
- Equipment loans – These loans are ideal for companies that need to pay for the acquisition of equipment, such as machinery, cars, or computers. The equipment loan is secured by a lien against the equipment, which serves as collateral for the loan.
- Accounts Receivable Loans – Accounts receivable loans are ideal for companies that consistently have a backlog of unpaid invoices and require quick access to cash. The receivables are used as security for the loan, and the lender will typically advance a portion of their invoice value.
- Private money loans are ideal for companies needing short-term loans for real estate projects. When a business is unable to secure financing from a traditional lender, they can turn to these loans and contact private money lenders. They are typically more expensive than traditional bank loans.
- Hard Money Loan: A hard money loan is the best option for companies that require a short-term loan for real estate investments or to finance property renovation. When a business is unable to secure financing from a traditional lender, these loans are used. They are typically more expensive than traditional bank loans.
- Business Line of Credit: Companies that require access to a source of funds that can be used as needed, up to a predetermined limit, should use a business line of credit. The company only pays interest on the money it actually uses, and it is free to return and repurpose the money as necessary.
Before deciding on the best kind of commercial loan for your needs, it is crucial to carefully consider your financial situation and business needs. To choose the best course of action, it might also be beneficial to speak with a commercial loan specialist.
It’s wise to select the commercial loan type that most closely matches the unique requirements of your company. The following factors should be taken into account when deciding what kind of commercial loan you require:
What do you need the loan for, in terms of its purpose? For instance, are you in need of financing for equipment purchases, business expansion, or debt refinancing? What kind of loan is best suited will be determined in part by the loan’s purpose.
What are the terms of the repayment that you are comfortable with? Do you prefer a long-term loan with lower payments overall or a short-term loan with higher monthly payments, for instance?
What assets are required to be used as collateral for the loan? Some commercial loan types, like equipment loans, use the equipment as collateral, whereas others, like term loans, may require personal or corporate assets.
Creditworthiness – What is your business and personal credit score, and what are the lender’s credit requirements? These details will be used by lenders to assess your loan eligibility and determine the interest rate they will offer.
What is your expected future cash flow, both now and in the future? When deciding how much money to lend and what kind of repayment terms to offer, lenders will take this into account.
When are you in need of the money, and how long will it take you to pay back the loan? Based on the offered repayment terms and interest rate, this will help determine which loan type is the most suitable.
You can choose the kind of commercial loan that is most suitable for your company’s needs in terms of financing by taking these factors into account.