How do I get a commercial loan?

Commercial lending provides business owners with increased access to capital and can be used to acquire new assets and supplies to start up or expand your business, buy equipment, or manage day-to-day operating costs. There are several types of commercial lending options available for business owners to consider, including loans, lines of credit, leases, and mortgages. What you intend to use the funds for will help determine which lending option is right for you.

The process to apply for and secure a commercial lending agreement is very different from a personal lending agreement because no two businesses are exactly alike – therefore, no two commercial lending agreements are exactly alike. Depending on your business, the information you’ll be asked to provide your lender with can vary. The lender needs to make a complete evaluation of your business before they can decide how much financing they can provide and the terms of that financing agreement.

When considering commercial lending applications, lenders need to do their due diligence to assess your business and the level of risk involved in providing you with financing. They will look at your business as a whole to determine if your request for financing is sound, to ensure that the funds will be used for the intended purpose, and to feel confident that you’ll be able to repay the lending agreement in the future.

As part of your commercial lending application, you’ll need to provide your lender with some key information about your business. This usually includes the following documents:  

Company Financial Statements, Budget, and Financial Projections

This includes interim financials and year-end financials that show your balance sheets, income statements, cash flow statements and statement of retained earnings (if applicable to your business) for at least two previous fiscal years. This allows the lender to evaluate the financial health of your business and look at key indications such as your current debt-service ratio, liquidity, profitability, solvency, and more.

In addition to your current financials, the lender may want to see your budget for the business and a breakdown of how you plan to use the funds provided. They may also ask to see your financial projections to give them a sense of expected growth and anticipated long-term revenue. This could include comparisons for financial projects that show what will happen to the business if you receive the funding amount requested versus what projections will look like without funding.

Bookkeeping Records and Business Tax Returns

If your financial statements are unaudited, lenders will want to see your bookkeeping records to evaluate things like your accounts receivable and payable, among other items in your books to help them evaluate your business’s financials.

Lenders may also ask to see your business tax returns if your financial statements are unaudited.

Personal Tax Returns, Credit Assessment, and Personal Net Worth Statement

Depending on your business structure, a lender may also want to examine your personal finances when considering your commercial lending application. If you’re a sole proprietor or in a partnership agreement for your business, you have unlimited personal liability for the debts of the business, so this is an important factor for lenders to consider in your application.

You’ll need to provide at least two years’ worth of personal tax returns to demonstrate your business income, and a personal net worth statement to help the lender evaluate your financial position and ability to guarantee the debt. The lender will also run a credit check to understand what personal debt you currently have that could affect their decision to provide financing.

Business Plan

To help the lender better understand your business and the industry in which you operate, they often will request to see a business plan. A business plan typically includes the structure and management approach of the business, history, market segment and customers served, details on your product or service, competition and risk assessment, etc.

Other Supporting Application Documents

Depending on the purpose of your financing request, your lender may request other supporting documentation. For example, if you are seeking a commercial mortgage or lease, the lender will ask to see the property offer to purchase or lease agreement. If you want a loan to purchase new equipment, the lender will ask for the equipment bill of sale.

As you consider your commercial lending application, you might be wondering: 

• How much can I borrow?

• Is there a down payment required?

• What will my interest rate be?

• How much will my payments be each month?

• Can I pay the loan early?

Commercial lending is complex, and as outlined earlier, every business and its lending needs are unique. Because of this, the answer to the first three questions is the same: the amount you can borrow, the down payment that may be required, and the interest rate a lender can offer you is dependent on the overall financial strength of the borrower. There are many factors that the lender will consider when assessing your application, and there is no one-size-fits-all approach.

Similarly, your payments will be determined based on the amount of the lending agreement, amortization period, interest rate and other factors. Your Commercial Account Manager will work with you to figure out payment terms that are appropriate for your business. They will also outline repayment options and ensure you understand if there are any penalties associated with early loan repayment.