Small businesses are the backbone of the American economy. They account for nearly 50% of all private-sector jobs and generate more than half of the country's GDP. Yet, companies with 100 to over 1,500 employees often struggle to secure the business funding they need to grow and succeed.
Commercial loans can help small businesses overcome this hurdle. Keep reading to learn the basics of commercial loans, the different types available, how to apply, as well as what documents banks in NC may require for commercial loans.
Commercial Loans 101: Benefits and Basics
Businesses can use commercial loans to cover the costs of daily operations or expansion. Unlike personal loans, which are based on an individual's credit score and personal income, commercial loans are granted to a business based on its creditworthiness and ability to repay the loan.
Commercial loans typically offer larger sums of money and longer repayment terms than other types of loans, making them an attractive option for businesses that need to invest in their growth.
Types of Commercial Business Loans
Several types of commercial loans are available for businesses. Working with a financial advisor or loan officer can help you make an informed decision about which funding option is best for you.
Term Loans
Term loans are commercial loans that provide a lump sum of money you can use for a specific purpose. These loans are repaid over a set period of time, usually in regular installments. Term loans are ideal for businesses that need a large amount of capital upfront for expenses like
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purchasing equipment
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expanding their business
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or hiring more employees
Lines of Credit
Lines of credit are another type of commercial loan that provide businesses with access to funds as needed.
In this case, you could be approved for a certain credit limit and can draw on the credit line as needed, paying interest only on the amount you borrow. Lines of credit are ideal for businesses that need access to capital for ongoing or unexpected expenses.The benefit of lines of credit is that they offer flexibility and lower interest rates than credit cards. However, they may have higher interest rates than other types of loans and may require collateral.
Commercial Real Estate Loans
Commercial real estate loans are designed to help businesses purchase or refinance commercial properties like:
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office buildings
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warehouses
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or retail spaces
These loans are secured by the property and repaid over a set period. Commercial real estate loans are ideal for businesses that need to purchase or refinance a property to expand their operations.
The benefit of commercial real estate loans is that they offer long repayment terms and low-interest rates. However, they require significant collateral and may have strict credit requirements.
How to Choose the Right Commercial Business Loan
When choosing the best commercial loan for your business, consider your business's financing needs, cash flow, credit history and collateral. Be sure to shop around and compare loan terms, interest rates and fees from different lenders to ensure you're getting the best deal.
Navigating the Commercial Loan Process
The process of applying for a commercial loan can be complex and time-consuming. It typically involves several steps, including:
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Filling out an application
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Providing financial documents
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Meeting with a loan officer
For commercial loans, banks in NC may require a credit score of 700 or higher, collateral in the form of assets and a solid business plan outlining how you’ll use the funds.
Essential Documents You Need to Get a Commercial Loan
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Financial Statements: Your lender will want to see your business's financial statements, including income statements, balance sheets and cash flow statements. These documents provide an overview of your business's financial health and help lenders determine whether you're a good candidate for a loan. Make sure your financial statements are accurate, up-to-date and clearly organized.
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Tax Returns: Lenders will also want to see your business's tax returns from the past few years to help verify your income and ensure that your business is in good standing with the IRS. Ensure all relevant tax returns are prepared and organized before applying for a loan.
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Business Plan: Your lender will want a detailed business plan outlining your company's goals, strategies and financial projections. This document helps lenders understand your business's potential for growth and profitability and how you plan to use the loan funds to achieve your objectives. Remember to include a summary of your management team's experience and qualifications, along with an analysis of your industry and competition.
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Collateral Documents: Depending on the type of commercial loan, your lender may require collateral to secure the loan. Collateral can include assets such as real estate, equipment or inventory. Your lender will want to see documentation of your assets, like property deeds or equipment appraisals. Plan to provide detailed information about your collateral and how it will be used when you apply for your commercial loan.
Best Bank in NC for Commercial Loans
Securing funding through a commercial loan is an essential step for many small business owners and entrepreneurs to secure their business’s future. It’s a worthwhile process that requires careful planning and preparation.
F&M Bank of North Carolina, with offices in Concord, NC, Kannapolis, and other locations around the state have experienced loan officers who are committed to helping businesses find the financing they need to grow and succeed. We advise small business owners and entrepreneurs to take the time to research and understand their financing options and create a strong loan application that highlights their business's potential for growth and success.