When it comes to your business, it’s important to be educated about the types of commercial loans available to you. Each form of commercial financing has its own loan rates, requirements, and repayment terms. Learn more about what loan will work best for your business.
Traditional Term Loans
In a traditional term loan, you borrow a set amount of money from a lender to grow your business. The word “term” in “term loan” refers to the set repayment term length, which is normally one to five years. Business owners typically use the proceeds of traditional term loans to finance investments for their small business. Your business may qualify for a traditional term loan as long as your business has a good track record, has a good credit score, and is generating revenue. Your interest rate, length of term, and maximum loan size depends on your business’ revenue and credit rating. Remember, since traditional term loans have longer repayment periods than short-term loans, your credit score and business financials are important. A traditional term loan is one of the most affordable commercial lending options and works well for businesses looking to invest and expand.
Short-term Loans
Short-term loans are 3 to 18 months and work well for business owners who have small one-time needs, unexpected business opportunities, or an emergency. These loans are processed quickly, so they are excellent for situations when you need quick access to commercial lending. Short-term loans tend to work well for small companies looking for an immediate financial solution. However, keep in mind that short-term loans tend to have higher rates.
SBA Loans
SBA loans are business loans that are guaranteed by the Small Business Administration. The SBA is a government agency dedicated to helping entrepreneurs improve their small businesses. They have several funding programs, guaranteeing loans of up to 85% of the amount provided through an SBA approved lender. SBA loans work for several business purposes including working capital, refinancing other debts, purchasing inventory or equipment, buying other businesses, and more. All types of businesses, including new and small, can qualify for an SBA loan. One of the most important factors will be your credit score, as SBA loans are generally for business owners with strong borrowing history.
There are various types of SBA loans, with 3 programs that are the most popular:
- The 7(a) Loan Program
-
- This works best for businesses that have general financing needs, such as refinancing debt, expanding capital, or renovating an existing location.
-
-
- The Microloan Program
-
- Microloans are normally offered to small or newer business requiring a loan below $50K. Although these loans are smaller, they are not considered short-term loans as the term lengths can be longer than one year.
-
- The CDC/504 Loan Program
-
- This loan is used to purchase major fixed assets, such as large equipment and commercial real estate.
-
You’ll know which one is right for you depending on the size, age, and most importantly, the goal of your business.
Equipment Loans
You can use this type of loan for almost any type of equipment including manufacturing machinery, restaurant equipment, farm equipment, computers, furniture, and more. Equipment loans work similarly to car loans. The vendor will supply you the equipment that you need up front so that your business can begin using it right away. Then your lender will finance it for you, allowing you to have convenient monthly payments instead of paying the full cost up front.
Commercial Real Estate Loans
The purpose of a commercial real estate loan is to finance the purchase or upgrade of a commercial property, such as an office, manufacturing facility, or warehouse. As these properties can be very expensive, a loan is often necessary. Commercial real estate loans are similar to equipment loans in that the property serves as the collateral. Interest rates tend to be lower on commercial and real estate loans and can be spread out over longer periods of time, with typical repayment amortization up to 25 years.
Business Line of Credit
If you are seeking some flexibility, a business line of credit may be a good option for your business. A business line of credit is like a credit card. The lender will give you access to capital needed. You do pay interest, but only on the funds that you pull out. Once you have repaid your lender, your line of credit resets to the original amount and remains available to you. This is a convenient perk, as you do not have to reapply for another loan. As stated before, the benefit of a business line of credit is flexibility. It is an excellent way to fund or cover unexpected expenses because you can withdraw and repay whenever you want to.
- Ⓒ Wallis Bank, All rights reserved.
-
Equal Housing Lender 
- Privacy Notice Disclosures