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If you are the owner of a small business and you are planning to take it to the next level but you have just realized you are on a tight budget, then don’t you think that applying for a commercial loan could be a viable solution for all your problems? Have you heard about the benefits of loan financing? If you are willing to learn a little bit about the implications that loans can have on your scores or you simply cannot evaluate if commercial loans are just what you need or what you are looking for, I highly recommend you to take a look at this article. Let’s start by exploring the concept of commercial loans so that you can understand how they work and also let’s see where you will be able to find them.
What are commercial loans?
A commercial loan is a type of loan financing whose contract is made by two parties: a business company and a financial institution. They are different from other loans since they allow access to bigger funds that are used to cover major capital expenditures or other expenses that companies cannot meet on their own. The main characteristic of this loan is that they are short-term funding that permits companies to buy expensive equipment and afford other operational costs as well.
What are the characteristics of a commercial loan?
These are some of the features of commercial loans:
They can be renewable.
They are a short-term source of funds.
You can be allowed to arrange interest only payments depending on the lender you are working with. It can be negotiable.
In some cases, you may be required to use an item as collateral for your loan. Generally, the term can be based on this security.
What is a commercial real estate loan?
This loan is a type of mortgage loan that is a little bit different from the known ones through which you are granted money for the sake of buying homes. The first difference lies in the fact that commercial estate loans are secured by a lien on commercial. This means that the loan is used only for business purposes, generally, for an owner-occupied commercial property. As you can see, the money you obtain is solely for financing commercial buildings. It is the kind of loan that permits that you ask for money to purchase for business property.
As regards the loan terms of commercial loans, this loan can have short to long duration, such as three years or less (intermediate-term loan) and other with longer terms. Although the duration of such loans ranges from five years (or less, as mentioned before) to twenty years, the amortization period can last a little bit more.
What information should I bear in mind?
- Before being given the money, lenders will ask you a down payment that has to be around 20% of the purchase price of the property.
- The business has to occupy a big part within the building, at least the %50 of it.
- Residences for single families don’t qualify but multi-family properties do. Actually, it will depend on whether you manage your business out of it or not. If you do then it applies.
What is franchise financing?
Franchise financing gives you the chance to finance your business by providing you some profit that will allow you to upgrade and expand your project to your convenience. It is an ideal option for those who are starting a business and who don’t have enough money to set it on their own. There are not so many companies that offer this type of financing but it is important to know that all of them requires you to invest some money on your part.
What is the interest rate right now of commercial and franchise financing?
In the first case, the average rate for commercial estate loans ranges from 10% up to 18%. It is relevant to mention that the rate varies due to the variety of loans within this loan type, there are some which are more expensive than the usual ones. As regards franchise financing, if you ask for a loan up to 5 million, then the interest rate can be one of 5.75% to 9%, approximately.
Can you increase your loan amount?
Yes, thankfully this is always possible and you can replace your existing loan for another one. I recommend that if you have the feeling that you will resort to loan expansion, ask first the company you are dealing business with if they allow you to increase your loan and under which conditions they do so, so that in the future you don’t have any problems when doing that. Other companies may not allow you to do that but as an alternative, they can offer you multiple loans.
As we consider it is helpful to have all the relevant points resumed in a chart, we offer you the following diagram so that you can organize the ideas provided in a better way:
If you feel curious about other loan options, feel free to read other articles related to loan financing. Herein you will find how to get personal loans, mortgages, education loans and even more. Furthermore, you not only will know what they are and their implications but also the eligibility criteria set for each, possible loan costs and terms and even how to use loan calculators for you to try on your own.
All in all, if you are thinking of expanding your business or maybe setting up a new one and you are looking for some financing alternatives that help you cope with some costs, in this article you have found two good options that can facilitate your business management greatly: commercial real estate loan and franchise financing. You should now explore which are the best financial entities that allow you to get such loans, taking into consideration that not all of them have commercial and franchise financing in their services.
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