How to Choose the Right Commercial Loan for Your Business

Whether you need new commercial property, are looking to pay off unexpected expenses, or simply want to seize a timely opportunity for your business. Getting funding is often a crucial element during this process. 

That’s where the commercial loan comes in.

You might wonder, “Why should I consider a commercial loan?”

Here’s everything you need to know about choosing suitable commercial loans for your business.

Factors to Consider When Choosing A Commercial Loan

Before considering a commercial lending service, you’d want to look into the factors affecting how you can manage your loans given your financial status:

• Interest Rate: The interest rate can vary depending on your terms and how much money you can access.
• Credit Requirements: Some commercial loans explicitly consider the business’s credit standing before approving any loans.
• Fees and Charges: All loans can come with additional fees depending on the bank or lender you’re working with.
• Repayments: You’ll need to figure out schedules and how much you can repay to maintain your credit. This can include your monthly, weekly, or interest-only repayments after you use the money.

You can talk to a specialist on this subject and request the specifics of your loan terms before applying.

What is a Commercial Loan?

Commercial or business loans are finance options that allow you to build your business credit and provide access to the cash you need to keep your business running.

You can estimate what a lender can provide based on their commercial loan calculator.

They can help finance your business during seasonal fluctuations and maintain your business’s cash flow even when unexpected expenses arrive. It can also help you have constant access to funding for property or equipment.

You can get this service from a bank or alternative lending services online, like Lumi.

What Can I Use Commercial Loans For?

Whether your business is in retail, food, or manufacturing, a commercial loan can be a valid solution to access funds quickly.

Commercial loans can help maintain your business’s cash flow and allow you to invest in additional equipment.

While any business loan can come with other fees, these lending services are often the quickest way to finance any project for your business.

Types of Commercial Loans

Loan terms and interest rates can vary based on the type you apply for.

These are the most common ones which you can use to improve your business:

• Business Line of Credit: The business gets an upfront lump sum from which you can draw funds when needed, and you only pay the interest on what you use. You can use the equity to manage operating expenses or purchase equipment.
• Term Loan: This loan often has fewer restrictions on what you can use the money for, with fixed or variable interest rates. They’re best if you have varying expenses you need to cover, whether for cash flow or property.
• Commercial Property Loans: These can help cover commercial property specifically so you can add to your business’s assets.
• Inventory Finance: These help purchase a range of products that can be sold later. It’s often considered a high-risk loan for financial institutions, so they approve it on a case-by-case basis.
• Equipment Finance: This specifically helps fund a range of business equipment.

While there are other options, these are the common ways to borrow from a bank or alternative lenders to address your business needs.

Requirements for a Business Commercial Loan

Lending criteria apply when it comes to the approval of commercial loan products.

It’s common for lending companies to require the following of a potential client:

• Have been in the business for a minimum of 6 months.
• Have an active ABN or ACN
• Minimum monthly revenue of $5,000

Note that lenders may require additional documents for further consideration.

Features and Benefits of a Business Commercial Loan

The primary purpose of commercial loans is to provide a business with the working capital they need to effectively run and grow their business. 

They come with additional fees and interest rates for lending.

Advantages

Now that you know more about these loans, you might wonder how they can further improve your business’s development finance.

These are the expected advantages of commercial loans:

• They can help maintain your business’s cash flow, especially during seasonal fluctuations.
• They can increase your investment in your business through equipment and tools.
• They can have fixed or variable interest rates depending on what would best fit your financial situation.

Disadvantages

Even though these loans have many advantages, it’s best to be aware of the risks that come with them, especially since they can affect how you manage your repayment and overall credit.

These are the common disadvantages of commercial loans:

• They can have higher interest rates, especially with loan terms that don’t have collateral.
• They can have additional fees for establishing and maintaining your account and more. This varies greatly from lender to lender. So make sure to do your research and pick a lender that’s fully transparent with their pricing and fees. 

How to Apply for a Commercial Loan

Applying for commercial loans is much easier nowadays, especially with online alternatives like Lumi.

Here’s an easy step-by-step guide on how Aussie businesses can apply for loans.

Apply for the Business Loan Online

Submit an online application to your chosen lender.

Commercial lending tends to have a tailored approach, so they can ask for additional documents to help assess your ability to repay them.

Speak with your lender regarding their additional requirements. Their team usually has a specialist who can help you choose the best option for your business.

Get an Outcome 

Once you’ve submitted your requirements, they will assess all your documents to see the best offer for your business.

They can check for property value, annual reviews, and other factors affecting how much you can repay.

Talk to the team you’re working with and ask for all the details of your loan term before accepting the offer.

Withdraw Your Funds

Approved applicants can easily withdraw funds from their account, usually within the same business day as their approval. 

Stay up-to-date with your loan repayments and interest rate to maintain your account and continue to borrow in the future.

FAQs

We’ve answered some common questions on commercial loans and how they can help your business.

Can I Apply for Business Loans With a Bad Credit History?

In general, alternative and online lenders allow businesses with bad credit to help make financing more accessible. 

It is best to speak with your lender of choice to better understand their credit requirements. Since it’s a grey area and varies from lender to lender. 

How Much Can I Get Out of These Business Loans?

Amounts can vary depending on what you can pay for and where you get these loans from. 

Lumi, for example, can provide up to $500,000, depending on your business’s background and financial situation. 

Conclusion

As a business owner, you always want to see your business grow. It’s a continuous investment to maintain and grow a successful business. 

Feel free to talk to professionals about getting a commercial loan to help your business flourish.