What is a Commercial Loan?

As the name suggests, a commercial loan meaning refers to the loan given by the financial institutions, credit unions, or banks to the businesses. The companies may use these loans to finance their day-to-day working Capital requirements or invest in long-term and fixed assets.

Share Market and Bonds are not feasible and economical options for small companies. Due to the regulatory problems and the high price associated with the shares, it goes without saying that financing the working capital or fixed assets through equities is not a viable option for businesses. Small companies must rather apply for Commercial Loans at the banks or credit unions.

As mentioned above, commercial loans have various applications. You could use the loan to invest in the assets, finance business supplies, and meet your working capital requirements. It is important for companies to specify the purposes they will be using the commercial loans.

Procedure for Acquiring the Commercial Loan

The process of applying for and securing a commercial loan could differ from lender to lender. However, there are some basic steps that each Bank follows when advancing the loan. Below we have listed a few basic conditions that make you eligible for the commercial loan:

Qualification

The financial institution will request the company to submit the documents related to their financial history, Income, and other important details of the business. The bank will also consider your current business position, the reason you are applying for the loan, and your Credit Score. In other words, the pre-approval or qualifying process will help the company determine whether or not the business is eligible to repay the loan in a timely manner.

Loan Application

Once you are pre-approved for the loan, you must fill the loan application form and submit it to the bank. You must attach your past three year’s financial documents with the loan application. The bank might also request other documents to ensure that you are eligible for the repayment of the loan. The total time it takes for the lender to approve your loan application depends on the accuracy of your documents and how well you meet the eligibility criteria.

The lender will consider your credit history, Collateral requirements, current and future income, and more. The process usually takes a few weeks. During this period, the bank might ask the individual to submit additional documents to verify their financial information.

Approval

After the approval of the loan application, you will get a term sheet. It is a formal document that suggests all the parties involved in the transaction, the total amount required for financing, the interest charged on loan, and other basic details.

Why do you need a Commercial Loan?

The biggest advantage of the commercial loan is that it provides you with a source of funding for your capital requirements. You can settle the employees’ payroll, invest in new equipment, and use the cash to finance the working capital requirements. The process for applying for a commercial loan is quite quick and straightforward.