Sources
for business lending
The first
stop in applying for a commercial loan should be the bank that already
handles your finances. With your current bank, you have the advantage
of familiarity: you've established a relationship and shown that
you're a reputable business. Banks also usually have slightly better
rates for commercial loans than other types of lenders.
The tradeoff
is that banks are pickier about who they lend to. They may require
more collateral, lower debt to equity ratios, or more proven success
than other types of lenders. Often they'll decline commercial loans
to companies that have been in business fewer than five years.
There are
many other types of business lenders. The main distinguishing feature
is whether they offer secured or unsecured loans. Secured loans
are those that are backed up directly by collateral: real estate,
securities, or the equipment the loan is being used to purchase.
Unsecured loans are more typically offered by banks, while independent
financial organizations are more likely to offer secured loans.
These independent
companies are more likely to take risks on startups and smaller
businesses than banks. Often they specialize in particular industries,
types of loans, or business sizes.
Try
a broker
If you're
turned down by your bank or just think you're likely to be, look
into business loan brokers. As the name implies, brokers don't lend
money directly - instead, they'll assess your situation and decide
which lenders are most likely to accept your application.
Brokers
are often a good source for commercial loans for startups or other
higher risk businesses. Because the brokers bring in lots of business,
they can sometimes get approvals that you wouldn't be able to get
on your own. In addition, they'll also usually provide advice on
your paperwork and give you other help in getting the loan.
However
you can expect to pay a higher rate for a broker's services, both
because they need to markup the loan from the provider and because
they're taking greater risks.
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