What Makes Commercial Lending Special
Commercial lending involves loaning money to established entities or groups of people including businesses, limited labiality corporations, and partnerships. Cash flow and the stability or reliability of a company are extremely important when it comes to getting approved for a commercial loan. After a lender has reviewed the financial information of an entity and believe the applicant is reliable and will be able to repay the loan in full and on time, the bank loan will most likely be approved.
The Benefits of Commercial Loans
One of the benefits of commercial loans is lower interest rates as opposed to other types of loans or business credit arrangements. This proves beneficial for companies because it allows them to pay less for their financial assistance. Since the interest rates are lower, however, the standards for approval are higher than other loans. The stability of a company and its cash flow are vital considerations for a lender. They will investigate various documents regarding finances, tax information, and even the entity’s contracts with suppliers or customers. Despite commercial financing being more difficult to obtain and sustain, it is worth the effort
Key Differences
Commercial loans differ from consumer loans in various aspects, one of which is time span. Commercial loans are often shorter and if they are longer, they need to be secured by collateral. Another key difference between the loans deals with accountability. With consumer loans, the lender wants nothing more than the payments to be paid on time but with commercial loans, the lender continuously requests documentation. This could include financial statements or insurance information for collateral. An entity’s financial situation is constantly being looked at by the lender.
Another factor that sets commercial lending apart is the fact that commercial loans rarely come from credit unions. With the new federal regulations, credit unions are unable to lend businesses loans in most cases. Alternatively, Small Business Administration approved lenders are a viable option for commercial loans. They offer a variety of loan programs including general small business loans, real estate and equipment loans, and even disaster loans which offer a low-interest way to recover from a business disaster.
Understanding commercial lending and what sets it apart from other lending options is critical for any business or other entity. For most businesses, their financial statements and tax information will play key roles in the lender’s decision to extend a loan and will be continuously checked on to ensure the company will continue being able to repay a loan. It is different from consumer lending in the fact that the money is loaned solely to established business entities, and commercial loans are often obtained from Small Business Administration approved lenders.