Commercial lending are loans that are written to businesses for a host of reasons. Usually commercial lending revolves around expansion or securing property for a business.
How Does Commercial Lending Work?
Usually a bank or finance company even sometimes private investors are willing to lend a business some money to get the business where it needs to be. Commercial lending is different from personal or residential lending in many ways.
Commercial lending usually has minimum limits, it would be very unusual for a commercial entity to walk into a lenders office and ask for a five thousand dollar loan. Small loans are usually handled through a line of credit. Commercial lending especially for property typically starts at the two hundred fifty thousand mark. It just makes sense to the banks and other lenders to have a minimum when commercial lending.
The lending process is also different from personal or residential loans. With commercial lending there are a lot more documentation that is required. There may be requests for three previous years worth of financials and taxes and a host of other information that would never be requested to write a personal or residential loan.
Commercial lending for the purchase of property usually requires a couple of site inspections and business plans. Commercial lending for property usually also has to include business plans to justify the commercial lending. Sometimes with commercial lending the owners, partners or sole owner has to put up there good credit to secure the commercial lending. It is an additional safety net that is used by the lenders to be sure that the loan is going to be repaid. In cases where personal credit is used the person that is putting up their good name can be held liable for commercial lending gone wrong. This is a very bad idea and should be avoided.
Who Does Commercial Lending?
There are a few options for commercial lending. There are traditional banks that almost always do commercial lending. There are nontraditional banks that do commercial lending. There are funding agents that do commercial lending and there are private investors that offer commercial lending. Each entity will have different requirement and different rate schedules but they will all have plenty of forms and paper work to fill out and provide.
Commercial lending is the only way that some businesses can grow. Commercial lending is offered from many different avenues, it is a difficult process to navigate but is well worth it in the end for the business owners.
Commercial lending is almost always used to secure property and to expand.