Credit · July 17, 2020

What You Need to Know About Qualifying for a Commercial Loan

Whether you're expanding your business, restructuring debt or increasing your working capital, business financing can help you meet your goals.

Some basics remain standard in most cases, the process of applying and qualifying for a commercial loan can vary depending on what type of financing you're looking for.

Comparing types of loans

How you intend to use the funds from your commercial loan can impact the types of financing available to you. One option is a term loan, which provides a specific amount to be repaid over a set period, called a term. Term loans can come with fixed or variable rates. They offer an affordable way to borrow money with regular payments that fit your budget.

If you're purchasing real estate, another option is a commercial adjustable rate loan. This can be a good choice for an owner-occupied business, and it requires standard credit approval. Commercial adjustable rate loans come with 15- or 20-year terms.

A line of credit is a flexible form of financing that can make funds readily available when you need them through check-writing features. Once you repay the funds, you can borrow them again without having to reapply. A line of credit is a good option if your business is seasonal or if you experience unplanned expenses.

If you're borrowing money to purchase equipment or vehicles, consider equipment financing and leasing options. With terms ranging from 2 to 5 years, this type of loan allows you to acquire assets with low payments that help preserve your cash flow.

The application process

Once you decide which commercial loan is right for you, you'll need to apply for funding. Lenders may request several types of financial and business documents. For example, you might need to provide bank statements, balance sheets, income statements, and profit and loss statements.

If you're applying for a secured loan, you'll need to identify an asset, such as a piece of equipment or real estate, and provide the corresponding documents. You may also be required to disclose how you plan to use the funds.

How qualification works

Before applying for a commercial loan, you may want to determine if your business is financially strong enough to qualify. Lenders will look at the age of your business when determining your creditworthiness. Some lenders require a 2-year track record, as well as profit and loss statements that show steady increases in revenue over time.

Lenders may also look at your personal and business credit scores. Your personal score, which will range from 300 to 850, is based on your debt history, including payments, balances and credit length. Your business credit score will range from 0 to 100. It's calculated from your payment history with vendors, suppliers and lenders. In both cases, higher scores are better.

If your business score is low, you can take steps to improve it. First, obtain a copy of your report from reporting agencies like Dun & Bradstreet, Equifax or Experian. Then, review it for incorrect information. You can dispute anything that's not accurate. From there, identify ways you can improve your business score through best practices like reducing your credit utilization or paying down existing debt.

Be sure to check for vendors or suppliers that may be missing. B2B lenders aren't required to report credit history. If one of your vendors doesn't make reports, ask them if they can start. If they won't, you might consider moving your business to vendors that do to improve your business credit rating.

Financing can be an essential tool that helps grow your business when you're ready to reach the next level. When you know your choices, you can make the best decision on what type of loan to pursue. Even better, the process of applying and qualifying for a commercial loan can be an opportunity to understand your business's financial health and elevate your plans for the future.


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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.