Commercial Loan Definition, Types, & Where To Find The Best In 2023
Need a commercial loan for your small business but are overwhelmed by the terms and options? Check out the complete guide to commercial loans.
So you’re being bombarded with ads from banks and alternative lenders for commercial loans. But what are commercial loans, and where would you look for one? What are the terms, and how do you know if you’re being taken advantage of?
If you’ve had all these questions about commercial loans, we’re here to answer them all. You’ll want to familiarize yourself with loan terms and options before you sit down to choose the best small business loan. Read on!
Table of Contents
What Are Commercial Loans?
Unlike personal loans, commercial loans are a financial agreement made between a financial institution/private lender and a business. The business takes on debt from the lender in exchange for capital.
This money can be used for business expenses, inventory, or operating costs. A commercial loan is more or less a synonym for a business loan. Commercial loans aren’t specific types of loans, but rather a category of loans or loan-like products that lenders offer to businesses.
Where Can I Get A Commercial Loan?
Banks are still a great option for commercial loans if you’re within their operating radius. Lending standards are tight compared to those before the COVID-19 pandemic, so bank loans might be out of reach for businesses with bad or no credit. You still might find the most competitive rates at a bank, however, so it never hurts to look!
The private, alternative lending market picks up where banks leave off. These lenders have easier qualifications and quicker applications. Most also have a broader national focus which is helpful if your business is located in an underserved area. The trade-off (though there are exceptions) is typically higher rates and stricter repayment schedules since these loans are private capital investment opportunities rather than banking services.
Types Of Commercial Loans
This is where things can get confusing. If you’re entering the market just looking for any loan, you may quickly be overwhelmed by the terminology, buzzwords, and marketing gimmicks. On top of that, individual lenders will brand their financial products, making it harder to make a 1:1 comparison between different companies’ offerings.
The good news is, once you cut away all the gimmicks, there aren’t that many different types of products to wrap your head around.
Select from the list below to learn more:
How To Qualify For A Commercial Loan
You can narrow down your potential options for funding by eliminating any options that you don’t qualify for.
Qualifications vary from lender to lender, but these are the main things you should consider.
What To Look For In A Commercial Loan
Just because you qualify for a loan doesn’t mean that a lender meets your qualifications.
What should you be looking for in a lender/loan?
Next Steps: Compare Top Commercial Lenders
Hopefully, we’ve answered some basic, nagging questions about what commercial loans are and how they work. With so many potential options, finding a lender can be an overwhelming prospect. Not sure where to look? We can help get you started.
|Loan Type||What It Is||Typical Rates||Learn More|
Traditional Term Loans
Loans in which you borrow money in one lump sum and repay in fixed installments. Term loans can be used for most business loan purposes.
4% - 36% APR
Small Business Administration (SBA) Loans
Loans offered by the SBA in partnership with banks and other financers. SBA loans are backed by an SBA guarantee and originated by banks and other partners.
6% - 12% APR
Commercial Real Estate Loans
Loans used to finance the purchase of commercial real estate.
4% - 36% APR
Business Lines of Credit
Credit lines used for business purposes. Borrowers can draw from their credit line at any time and only pay interest on the amount borrowed.
8% - 65% APR
Business financing with short term lengths, which normally have a one-time fixed fee instead of interest.
8% - 99% APR
Loans used to finance the costs of starting a business.
4% - 36% APR
Loans used to purchase equipment. The purchased equipment is normally used as collateral to back the loan.
5% - 24% APR