Applying for a commercial loan is very different from a home loan, personal loan or car loan. Commercial loans have higher interest rates than conventional loans, have a much larger risk factor involved, and most banks have stricter criteria to give out business loans.
However, if you know what steps to take in order to tick all the boxes for a commercial loan, the process will go on very smoothly. You must try to stay on top of these criteria even if you do not need a loan right away. That is because your credit score is one crucial factor that affects your eligibility for receiving a commercial loan. Therefore, to stay prepared for situations when you might need a loan, keep track of your credit score periodically.
All lenders have different criteria, but getting commercial loans also depends on the type of loan you are seeking. Whether the loan is for purchasing property, buying or renewing business equipment, hiring new staff or improving your cash flow for certain difficult months, the rate of interest would vary as well as the eligibility. Moreover, the higher the amount, the riskier it will be from the point of view of the lender. To make things easier for you, below are some of the ways to make sure you get the loan you are seeking at competitive rates.
One of the first things that a lender would inspect is the property evaluation. This applies only to commercial loans for the purpose of purchasing a property. The lender would ask about the location and area square footage and figure out how lucrative the property deal is. These things are helpful in knowing the ”loan value ratio”, also known as the LVR of the offer.
Your income statement or profit and loss statement have a crucial role in meeting the standards for receiving a commercial loan. There is another financial scrutiny, such as cash flow, entity evaluation, balance sheet etc., that determine your eligibility towards getting the loan.
A bank or broker is easily inclined towards lending you a commercial loan if you extend a personal guarantee. A personal guarantee is an assurance that in case the company is unable to pay back the loan, the owner will be paying back to the bank or broker from his own pocket. This is advisable in scenarios where the owner has sufficient income and assets in his personal accounts.
These are personal documents that the bank needs, such as id proof, income proof, etc. These documents also include documents associated with the company, such as ABN.
Based on business requirements and demands for different types of loans, there have been three basic categories of loans.
General business loan requirements have given rise to three different categories of loans; these are Full-Doc, Low-Doc and No-Doc loans.
Full Doc Loans
These are loans that are given only after complete verification and documentation. In this kind of loan, all documents such as identity proofs, income proofs from profit and loss statements to bank statements and cash flow are checked to ensure the applicant’s financial capabilities thoroughly. However, these loans offer the lowest interest rates on commercial loans.
Lease Doc Loans
In this loan, you have to prove that the income generated from the lease is higher than the potential interest on the loan amount.
Low Doc Loans
This loan is given on the basis of income declaration by the owner or the accountant. Obviously, this type of loan involves a lot less paperwork and a lot more risk for the lender. Therefore, the interest rates are usually higher to compensate for the uncertainty of loan repayments. A low-doc loan is ideal for businesses that have lower profit margins or extremely irregular cash flow to help them gain some momentum and achieve more stability in the long run.
No Doc Loans
A no-doc loan is a loan where the lender is willing to provide you with funds without any documentation. Here, you do not even need to present an income declaration. Naturally, this entails a much higher risk and, therefore, a much higher interest rate. The only catch here is that the applicant will have to provide strong security in the form of an equivalent asset so that the lender can recover his losses.
Other kinds of Loans
There are a few other kinds of loans for different scenarios. For example, if you are looking for financial assistance to buy a new machine, you can opt for an asset finance loan. If what you are looking for is a monetary boost for hiring professionals or improving your cash flow, then fast financing could be a great alternative. This is because, with fast financing loans, you can get the funds in less than a day.
You can get commercial loans at very competitive interest rates. The only deciding factors for that are your assets valuation, credit score and finding an excellent lender or broker. Contact us to get the best possible loan at reasonably low-interest rates.