Commercial loans

The term "Commercial loans" is usually a generic name for various types of loans used for business purposes. Commercial loans are debt instruments issued by a bank or other financial institution that require the borrower to payback principle loan amounts, interest and any applicable fees over a specified period of time.

TYPES OF LOANS AT A GLANCE

SBA7(a) LOANS
COMMERCIAL LOANS (LONG-TERM)

Usually larger amounts used for purchase of real estate or major capital expenses, paid back over a long period of time from 5- 10 years. Loan amounts are generally above $1 million.

SBA7(a) LOANS
TRADITIONAL TERM LOANS (MEDIUM TERM)

These are the most common types of loans for small businesses. They can be general purpose and paid back from 1-5 years. Loan Amounts vary from 25,000 to 5 million.

SBA7(a) LOANS
SHORT-TERM LOANS (3-18 MONTHS)

These are usually cash-advance type loans designed to cover short-term expenses or provide additional capital during seasonal revenue lulls. Loan amounts range from as low as 5,000 to 250,000

In practice, many large banks in the U.S. commonly associate a commercial loan with the purchase, improvement or refinance of commercial real estate.

While the expression commercial loans are used generically, it is important for business owners to understand that there are many choices when it comes to business financing. Not only are business loans created differently, there are now many more sources to acquire a commercial loan. Loans are created differently to service the varied needs of a business. For example, short-term loans versus long-term loans, secured versus unsecured, and line of credit versus lump-sum borrowing are differing loan programs. In this section we will review the most popular options for commercial loans, how they work and how to get them.

Top Commercial Loan Brokers in New Jersey

MBS & Finance Corp is one of the Top commercial loan brokers in New Jersey. Loan brokers generally engage in arranging loans between borrowers and lenders. Loan brokers are in great demand in the United States and MBS & Finance Corp is a well-known Commercial loan broker in New York, Commercial loan broker in Edison, and Commercial loan broker in New Jersey. The process to secure a commercial loan may vary from lender to lender. However, the general process is as follows:

Process for Securing a Commercial Loan

Pre-approval (Qualifying process)

The lender (bank) will begin by evaluating the financial history and income of the business. Besides, the existing debt of the business and the purpose for the loan will be investigated by the lender. Through this pre-qualifying process, it is possible to roughly figure out how much the business would be able to borrow and the riskiness of the borrower.

Loan application

The next step in this process is submitting a loan application. In this step along with the loan application financial statements or similar documents from the last three years are required to be submitted. This is a way of ensuring that the business is capable of paying back the loan.

Review of the application

Next, the loan officer will investigate the following things such as credit history, available collateral of the business. The officer will also verify the current and projected income of the business.

Loan underwriter/Loan committee

Once the loan application is approved, it is moved to a loan underwriter or loan committee. At this stage, all relevant information will be reviewed and the decision of whether to approve or deny the loan is made. This process can extend up to a week and during this stage, the company requires to provide added documents for review.

5. Term sheet

If the loan is approved, the company will have to fill a term sheet. A term sheet is a formal document that summarizes the parties involved, amount of financing, available collateral, fees, use of the loan, and the interest rate on the loan. After reviewing the term sheet and signing a letter of intent, payment may be required for third-party reports, e.g., appraisal reports.

6. Loan package and closing documents

At this stage, the complete loan application package will be resubmitted to the loan underwriter for final approval. If the loan gets approved, the business will have to sign finalized loan documents. Generally, businesses employ a closing agent (e.g., an authorized representative, an attorney, etc.) to handle all closing documents and complete any remaining paperwork.

TYPICAL USES FOR A COMMERCIAL LOAN

Commercial loans are typically used to fund large capital purchases or to finance operational costs usually associated with business expansion or acquisitions. Commercial financing or commercial loans can also refer specifically to a commercial real estate loan. However, commercial financing can be used in a variety of way sand are increasingly classified as general purpose loans.

OPERATIONAL EXPENSES

Operational expenses (also known as OpEx) are associated with on going costs a company pays to operate its core business activities. An example of operational expenses may include costs to meet higher payroll demands, cover extraordinary seasonal expenses or to purchase goods used in the manufacturing process.

CAPTIAL EXPENDITURES

Capital expenditures (also known as CapEx) are funds used by companies to acquire, upgrade and maintain physical assets. Common capital expenditures may include purchase of new equipment, upgrading business technology, facilities and inventory, and of course, real estate. That said, commercial loans are generally characterized by larger loan amounts and longer durations such as those associated with real estate purchases (commercial mortgages) and large capital expenditures, such as heavy machinery or capital items that have a longer useful life horizon.

WHO QUALIFIES FOR A COMMERCIAL LOAN?

Commercial loans (in the traditional sense) are usually given by medium to large banks and financial institutions. The borrower profile tends to be a business owner with a strong credit history (680 personal credit score or better), at least 250,000 in annual revenues and those companies that have been in business for several years. In addition, these types of loans almost always require some degree of collateral to be pledged against the loan in case of default.

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