Overview: How to Find and Get the Best Commercial Loan Rates – Essential Information
There’s no denying that taking out a loan is a big decision for anyone. The responsibility attached and the consequences if something goes wrong can be a lot to handle.
This is even more pronounced with business loans, as it is possible for entire companies to collapse as a result of mismanagement or bad luck. Fortunately, there are things you can do to minimize risk and deal with problems.
Business loans and, therefore, business loan rates and terms are usually very different from personal loans. They’re short term, from as little as 30 days up to a year, and are given for a specific purpose.
This might be, for example, for inventory or to upgrade infrastructure. The reasons for the loan are especially important to note for a business startup loan.
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It is necessary to have a good understanding of commercial loan rates if you intend to take one out for your business.
Whether these are small business loan rates to start a new venture or a corporate loan to expand into new markets, you’ll need basic information to find the best low interest business loans for your needs and avoid common pitfalls. The most important points to consider are:
- How much do you need?
- What exactly do you need it for?
- How quickly can you pay it back?
- How long have you been in business?
- What is your collateral?
- What is your personal credit history?
Though this is just a small sampling of what you need to think about to get the best small business loans rates, it is helpful. It highlights how much planning and thought should go into the process.
It is not simply a matter of comparing rates online, as might be the case with personal loans. Business loan rates are highly variable and dependent on a lot of individual factors that you will need to prepare for before shopping around.
Fortunately, there are some tools that you will want to take advantage of to help you deal with calculations along the way. Bankrate.com, for example, provides a useful calculator for figuring out your totals, monthly payments, and any additional costs you might have.
Best Commercial Loan Rates – What Is a Commercial Loan?
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Most people are familiar with personal loans, in that they’re essential for everyday life in a lot of ways. Commercial loans, however, are more complicated and often come with higher risks which are reflected in higher business loan interest rates. In the simplest terms, a commercial loan is a loan taken out on behalf of a business instead of an individual.
In practice, there are actually a wide range of commercial loans best-suited for specific purposes. Business startup loans, for example, are used to lay the foundation for a new business to grow. As business loan rates are set on a case-by-case basis, startups will pay higher rates than more established enterprises. Banks might also require more detailed and frequent updates about the status of the business.
Since the specifics of business loan rates are so dependent on the business and the item the loan is used for, how much you can borrow and expect to pay back can vary wildly. As a general rule, though, the loan itself is a percentage of the value of the item, with the rest covered by a down payment.
If you don’t have the cash for a down payment for the business loan rate, it is also possible to use other property as extra security.
Banks will typically require borrowers to submit a plan for their business regardless of size. In addition, regular financial updates and proof of insurance on whatever the loan was used to buy is common.
The process for even receiving a small business or corporate loan is complicated and fraught with problems. We’ll take you through the steps involved so you can avoid issues and focus on finding the most competitive rates.
Commercial Loan Rates – Application and Underwriting
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The first step when applying for a commercial loan is the initial application. You should either do this yourself or through a broker, depending on your preferences.
You should also submit a document detailing for the purpose of the loan, including a list of essential things you plan to buy with it. For good small business loans rates, you’ll want to be up front about this and have time to spare since it may take a while to get rates from various competitors.
The reason that it may take a while to clearly compare various business loan interest rates is because the loan officer you’ve applied with will need to consider a lot of details.
An applicant needs to fit the agent’s portfolio of work, show that he or she has enough collateral or a strong enough credit history to offset any risks, and demonstrate how his or her business will be profitable. If the loan officer approves this, then he or she will set the business loan rates that suit the circumstances and respond with the final terms.
It is up to you, at this point, if you want to accept these terms. This is probably the most important part of the process – choosing a low interest business loan with terms that suit you.
Once you’ve confirmed that you agree to the lender’s terms, the rest of the process will likely prove difficult and take a very long time to finalize, so only go forward if you’re confident.
The lender submits your application for a corporate loan, small business loan or business startup loan to a committee for the final decision. At this point, you’ll be asked for a lot of documentation for nearly every aspect of the business, and you can be declined at any point. Due to the time and money potentially wasted doing this, it is really important to be certain that this deal is worth the risk.
Commercial Loan Rates – Getting the Best Deal
Small business loan rates tend to suffer from the problem of being a higher risk investment than larger corporate loans. This is doubly true with a business startup loan, as the business in question is usually unproven and has fewer assets to use as collateral.
As a result, small business loan rates are often significantly higher than average compared to other types of loans. As we’ve already covered, it’s important to know how to shop around for the best rates, but there’s more you can do to get the best deal from each lender.
Steps you can take to get better deals from lenders include:
- Improving your credit score
- Demonstrating your trading history
- Making a larger-than-expected down payment
- Showing a detailed and realistic business plan
- Considering the type of business you want
While your personal credit score won’t be directly relevant, as you’re not likely to be personally liable for the loan, it does demonstrate that you’ve borrowed before and were responsible with the money and repayments. This might make a lender feel more confident and thus offer you better small business loan interest rates.
If it’s an established business or you’ve been in business before, showing a good trading history also helps. This is effectively the credit history for your business and will go even further then a personal one.
In most situations, a certain percentage of the item you’re buying with the loan will be covered by a down payment before the loan is approved. The amount varies a lot, but a lender will let you know what he or she expects before giving you business loan interest rates.
You can almost always get a better deal from lenders, however, by negotiating to pay a bigger down payment than the minimum they ask for. This makes you less of a risk, especially for a business startup loan, and reduces the overall amount you’re borrowing.
Finally, you must have a really clear vision for your business. Detailed costs and expected profits, for example, show a lender that you’re thought about careful financial management, which again makes him or her more confident in you. This is vital for good small business loan rates and will probably have the biggest impact on the deal you get.
In addition, not all industries are created equal in terms of profit; a bank is much more likely to offer a good deal on and approve a business startup loan if you’re in a profitable industry. We will now consider these points in more detail and how you can work on improving them.
Commercial Loan Rates – Credit Score and Trading History
When low interest business loans are the goal, the simplest thing you can do to improve your chances is to have a good credit score. Fortunately, there are steps you can take to clean things up if you have a bad one. While small business loan interest rates are often dependent on good personal credit, a more established business should focus more on their trading history, which is a stronger sign of the health of the business itself.
The easiest method of improving your personal credit score, which is most valuable for low interest business loans on startups, is to take out a line of credit. Credit cards should be used but the level of credit on them kept low and always paid on time. All personal debt, including other loans or credit cards, should be paid in full and on time. So, keeping your cards active but not overused is the best method here.
Unfortunately, simply taking out more cards and not using them won’t work nor will closing unused cards. On the other hand, paying off loans on cars, keeping up with personal mortgage payments, and paying off student loans are all effective ways of improving your score.
Proving your trading history might be trickier or even impossible if you’re looking for a low interest business loan on a new company. If your business is newly established and you’ve never run one before, it is very unlikely that you’ll be able to do this. If you do have prior business experience, however, especially if it’s in the same field, you can use that to considerably improve the small business loans rates that lenders offer you.
Detailed records of your past business, particularly accounting records that show good financial management, are one of the most effective ways of bringing your business loan rates down and speeding up the approval process. Lenders, especially banks, will be able to use those records to offer you much more competitive business loan interest rates than they’d otherwise be able to.
Commercial Loan Rates – Down Payments
Almost every loan, whether personal or commercial, requires some level of down payment before the lender considers it. For calculating business loan rates, this usually amounts to a percentage of the item or items the loan is used to buy. Small business loan rates, as we’ve already established, are usually higher due to the unproven nature of the business. Though they normally borrow less over all, small businesses will sometimes pay a higher percentage of their loan in down payment.
For business owners without a lot of capital to throw around, getting together the money for a down payment can be tricky. Paying more than the required minimum is probably not an option for many. If it is possible without taking on a lot more debt, however, doing it could be beneficial to receive much lower small business loan rates. Paying more up front will likely save you lots of money in the long run.
Most banks expect a 10–20% down payment before they’ll approve a loan, though some charge as much 30%. Just like with business loan interest rates, a good credit or business history will really help with this and lower the expected down payment. Paying in cash savings is also standard practice, though there are some rare exceptions that allow more debt if the terms are very favorable. As a small business or startup, you’re not likely to have much cash savings to spare, so consider other options.
If, for example, you are a homeowner, you can consider a home equity loan. These usually have really great rates and terms if your home has good enough equity, so a lot of lenders will accept those instead of cash. This should allow for a bigger down payment and lower small business loan interest rates for you, saving money in the long term. Think carefully about your choices and be sure to plan ahead to balance the risks and rewards of each option.
Commercial Loan Rates – Conclusion
There’s no question that taking out a commercial loan is a difficult, sometimes frustrating process. Starting or growing your business can depend on a lot of complicated factors, and managing to get good business loan rates can mean the difference between success and failure. As with most big business decisions, careful planning and good financial planning are vitally important.
Fortunately, there is a lot of good advice online to give you more specifics on what you need and tools to help you calculate. We’ve provided a few links for you in this article to check out, so make good use of them. Major companies have far fewer difficulties in this field than smaller ones, so those looking for decent small business loan interest rates will benefit most.
AdvisoryHQ (AHQ) Disclaimer: Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info. Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.
AdvisoryHQ (AHQ) Disclaimer:
Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info.
Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.