A commercial loan is provided to businesses to fund their business ventures and operations. The loan can be used, for many business-related purposes such as to purchase or lease property, stock inventory, pay overhead, perform renovations or repairs, and purchase equipment. There are different types of commercial loans available to meet different needs such as small business and start-up loans, equipment loans, real estate loans, and construction loans.
Business owners must often prepare a formal loan proposal before approaching a lending institution. The proposal needs to include a business plan covering at least the first five years of operations, with details about the advertising and marketing strategy, the targeted customer base, the goods or services that will be provided, and financial planning.
Commercial loan lenders also evaluate the owner’s personal and business credit history before approving an application. Start up business owners must have a good personal credit rating as that is the only way a lender can evaluate the owner’s ability to successfully manage finances.
Some commercial loans have slightly different requirements than others. A construction loan may have less rigid payment requirements, and an equipment loan can be secured by the value of the piece of the equipment. Real estate loans or mortgages can also be secured by the value of the property.