Getting the Commercial Loan in USA- Step by Step Guide

A business loan can provide the funds you need to expand operations, cover day-to-day expenses and purchase equipment or inventory. If you’ve never applied for a business loan, you might be unsure about where to begin or which documents are required.

Just as families use mortgage loans to purchase a home, businesses can use commercial real estate loans to obtain a new office or storefront. You could use a commercial property loan to build a stand-alone building, buy office space in a large mixed-use business center or even purchase residential property meant to be leased out to tenants. As long as the property you’re interested in building or buying will be used primarily for producing income, it’s likely considered commercial real estate.


Purchasing commercial property to either set up a new facility (a store, office or warehouse, for example) or to expand an existing one is often a major commitment for a small business, one that is usually financed by a commercial real estate loan. Your business’s access to this kind of loan — which in some respects resembles a residential mortgage for business property — depends on several factors that vary according to the loan source.

How Commercial Loans Work

Most business owners apply for a commercial loan so they can get to the next stage in their business. This short-term funding helps with the operations of the company on either a large or small scale. Loans can be used for nearly anything from the purchase of a commercial building to funds needed to pay a surge of contract employees.

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Once a business owner has identified that their company is in need of a loan to continue operations, they usually have to approach the financial institution with collateral. This collateral will end up becoming the bank’s property if the business defaults on its loan or goes bankrupt.


When making a lending decision and signing a loan rate with terms, the financial institution may look at a number of factors, including:

  • Your company’s finances: Similar to consumer loans, an institution issuing the loan will want to take a look at your company’s finances, debt service coverage ratio (similar to the debt-to-income ratio for consumer loans), and credit profile to determine your company’s creditworthiness and ability to repay the debt. The financial institution wants to see the company’s balance sheets to showcase cash flow and any liabilities it currently has.
  • Your personal information: It’s common for an individual to have a better credit history and credit score than their business, especially if the business is new. In this case, the bank may request information to assess your personal creditworthiness too.
  • The property you need a loan for, if applicable: If you’re applying for a real estate or construction loan for your business, the financial institution may also want information about the property to determine things like appraised value.

How to improve your chances of getting approved

Business owners with poor credit or new businesses may face more obstacles when applying for a commercial real estate loan. Some things you can do to help boost your chances of getting improved include:


  • Paying off existing debt and taking other steps to improve your credit scores
  • Pledging additional collateral if you have it
  • Adding an investor or cosigner
  • Agreeing to pay a larger down payment and/or higher interest rate
  • Selecting a less expensive property

Decide what type of loan you need to fund your business

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Which type of business loan is right for you depends on what you’re hoping to accomplish. In general:
If you want to finance a large purchase or business expansion: Traditional term loans are lump sums that you pay back over time with interest and often have high borrowing maximums — SBA loans can reach $5.5 million, for example. Many lenders also offer specific products to fit a growing company’s needs, such as loans for equipment or vehicle purchases.
If you need funds for day-to-day expenses: Business lines of credit are a flexible kind of funding that lets you tap into financing as you need it to cover expenses such as payroll or unexpected repairs, offering a useful safety net.
If you’re looking to fund a startup: It can be tougher for entrepreneurs to get a traditional business loan, but business credit cards and personal business loans can be good options if you haven’t been in business long enough to qualify for a line of credit or term loan.

Determine if you qualify for a business loan

You can get a business loan from a number of places, including banks, online lenders and microlenders. Answer these questions to help determine at which type of lender you’ll meet the eligibility requirements to qualify for a small-business loan:

What’s your credit score?

You can get your credit report for free from each of the three major credit bureaus: Equifax, Experian and TransUnion. You can also get your credit score for free from several credit card issuers and personal finance websites, including NerdWallet.
Banks prefer to offer their low-rate business loans to borrowers with credit scores in the good and excellent ranges, or 690 and above.
If your credit score falls below that threshold, consider nonbank lenders. Online business loans can be a little easier to qualify for. You may also want to consider small-business loans for borrowers with bad credit or microloans.

How long have you been in business?

You need to have been in business at least one year to qualify for most online small-business loans and at least two years to qualify for most bank loans.

Do you make enough money?

Many lenders require a minimum annual revenue, which can range anywhere from $50,000 to $250,000, for business loans and lines of credit.
If your revenue isn’t high enough to qualify for those loan products, consider looking into business credit cards or SBA microloans.

Determine what payments you can afford

Look carefully at your business’s financials — especially cash flow — and evaluate how much you can afford to apply toward loan repayments each month.
Your total income should be at least 1.25 times your total expenses, including your new repayment amount, says Suzanne Darden, a finance specialist at the Alabama Small Business Development Center.
For example, say your business’s income is $10,000 per month. That’s 1.25 times $8,000 of expenses. If you already pay $7,000 in rent, payroll and other costs, you should be able to afford a $1,000 monthly loan payment.
Some online lenders require daily or weekly repayments, so make sure to factor that in — you’ll need enough cash flow to make payments at the time they’re due. 


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