Small businesses are fraught with challenges, not least of which include attempting to secure credit.
Commercial loans are a great way to increase your working capital and expand your business rapidly, but they’re not a guarantee for SMBs. Depending on the purpose of your loan, strength of your business and the security you’re providing, they can range in difficulty to obtain from moderate to near impossible. Still, there’s always a chance.
Unsecured Commercial Loans
If you’re looking for money to spend on equipment, office furniture or just cash for an operating fund, you’re going to need an unsecured commercial loan.
These are the riskiest kinds of commercial loans, so they’ll be the hardest to convince someone to give you. You can approach a regular bank that does commercial lending and ask for a loan or turn to the U.S. Small Business Administration. The SBA is usually a little easier to convince, plus they’ll help you design a business plan that can ensure you’ll be able to pay your loan back over time. The downside is that they may not be able to offer you a loan that will have terms that you prefer.
In that case, a commercial bank could potentially offer you something different, but your options will be largely based on the strength of your case. You’ll need to establish a relationship with a bank and a banker and prove to them that your business is solvent. Cash flow and profit performance reports can help to show just how well you’re doing to an underwriter who may be hesitant to trust you with the bank’s money.
Commercial Real Estate Loans
Although unsecured commercial loans can be tricky for SMBs, commercial real estate loans are considerably easier. They’re by no means a guarantee, but because the loan is secured by real property and your contribution of a down payment of 10 to 25 percent of the sales price, banks feel much more confident in making these loans for SMBs.
You’ll still need to show that your company is making a profit and that you will continue to do so into the future, but your bank will be willing to stretch your payments over a much longer time period and even give you an interest rate break for your reduced risk. If you’re trying to establish some credit for your business and are ready to buy a building for your company, a commercial real estate loan can help anchor your brand in more ways than one.
SMBs absolutely can get loans – but they have to prove their creditworthiness to a lending institution or to the SBA. Armed with proof that you have cash flow and a sustainable business model, your SMB loan could be few applications away.