6 Commercial Loan Options to Grow Your Small Business

Small businesses often need access to capital, whether it’s to seize opportunities or navigate unforeseen financial hurdles. According to a CB Insights study, it’s estimated that 29% of small businesses fail because they run out of capital. Other reasons businesses fail can range from an inexperienced team, to being outcompeted, to having poor product offerings in place.

However, in several instances, a well-thought-out business loan can provide the necessary resources to help a company overcome challenges. It can include helping expand/upgrade staff, property, and equipment, managing cash flow, meeting payroll during financial droughts, and more. In short, it can unlock a company’s full potential.

Here are six types of business or commercial loans, and how they can potentially help your company:

1. Business Line of Credit.

A line of credit provides a predetermined amount (e.g. $100,000) that can be used as needed and paid back similar to a credit card. However, they often have lower rates than credit cards. Business lines of credit can also help manage cash flow fluctuations, cover short-term expenses, or seize immediate opportunities. The upside is you only pay interest on the amount used and can repay the principal when your company has excess cash. However, it’s strongly advised to only take out what you can reasonably pay back.

2. SBA (Small Business Administration) Loans.

These government-backed loans can offer more favorable and longer terms than traditional loans. SBA Loans can be used for diverse purposes, including real estate purchases, working capital, or business acquisitions.

3. Equipment and Fleet Loans.

Equipment and fleet loans are specifically for acquiring machinery, vehicles, or other equipment used for business operations. The equipment serves as collateral, and loan terms often align with the equipment’s expected lifespan.

4. Healthcare Practice Loans.

Some banks, like FirstBank, finance medical, dental, and other health care professionals and practices. These loans are used to acquire equipment, make tenant improvements, purchase a new practice, buy into or expand your practice.

5. Owner Occupied Commercial Real Estate (OOCRE) Loans.

If you plan on occupying 51% or more of your property’s space, an OOCRE loan may be an option. This loan allows you to purchase, renovate, and refinance your commercial property at often a more favorable rate than traditional Commercial Real Estate loans. As the property’s owner, you can lease out unused space to create additional income streams and cash flow while building equity. Read “5 Ways Owner-Occupied Real Estate Can Improve Your Cash Flow” at efirstbankblog.com to learn more.

6. Acquisition and Expansion Loans.

A business acquisition loan allows the borrower to purchase an existing business or buy into a portion of a company. In contrast, a business expansion loan is used to reinvest in your company by either opening another location or hiring more staff. Depending on your situation, several types of business acquisition and expansion loans have unique advantages.

Tips for selecting a loan

There are many factors to consider when finding a loan for your business. Consulting with financial advisors or loan specialists can provide additional insights and guidance in navigating the loan selection process.

Here are nine considerations to keep in mind:

1. Repayment terms.

Look at the duration of the loan and the flexibility of repayment terms. Longer terms may offer lower monthly payments, but higher overall interest costs over the life of the loan.

2. Interest rates.

Compare interest rates among different lenders and loan types. Fixed rates provide predictability, while variable rates may fluctuate based on market conditions.

3. Total cost of the loan.

Evaluate the total cost of the loan, including interest rates, fees, and other charges.

4. Fees.

Choose loans with transparent fee structures and be aware of any origination fees, application fees, prepayment penalties, or other costs.

5. Likelihood of approval.

Assess the eligibility criteria and loan approval requirements for each lender and loan type. Understand your creditworthiness and financial health, to help align with the lender’s expectations and improve approval odds.

6. Collateral requirements.

Evaluate collateral requirements, the assets you can provide as collateral, and the implications of doing so. Understand the risks of using personal or business assets as collateral and explore unsecured loan options. Unsecured loans do not usually require the buyer to pledge their assets for collateral.

7. Prepayment options.

Examine whether the loan allows for early repayment without penalties since this flexibility can save money on interest.

8. Approval time.

Consider the urgency of your funding needs since different loans have varying approval timelines.

9. Reputation and customer service.

Research the reputation of the lender, including reviews and testimonials. Choose a reputable lender with a history of positive customer experiences to ensure a smooth borrowing process.

Prepare to apply

Lenders review various factors when considering a business loan application to mitigate risk and ensure the borrower can repay the loan.

Here are seven tips to prepare you for the loan application process:

1. Credit score.

Maintain a good credit score by paying bills on time, reducing outstanding debts, and monitoring credit reports for inaccuracies. For more credit building tips, read “5 Credit Boosting Hacks You Should Know” at efirstbankblog.com.

2. Business plan.

Develop a detailed business plan outlining your business model, market analysis, realistic financial projections, and how the loan will contribute to growth.

3. Cash flow.

Positive and consistent cash flow with sufficient earnings to support your existing debt and the subject credit is essential.

4. Financial records.

Maintain accurate records, including balance sheets, income statements, and cash flow statements reflecting the current financial health of your business.

5. Collateral.

Identify and document tangible assets to offer as collateral, such as real estate, equipment, or inventory.

6. Business and personal debt.

Pay down existing debts where possible and demonstrate a manageable debt-to-income ratio.

7. Use of funds.

A clear and well-defined plan for using loan funds is important for lenders, so they can analyze the credit or loan amount requested.

Business loans provide the keys to unlocking doors to innovation, expansion, and lasting success. Understanding the diverse set of loans and leveraging resources can help entrepreneurs pave the way for a prosperous future.

For more tips and tricks, visit our Business Success page at efirstbankblog.com.

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FirstBank determines actual loan qualification only after receipt of a complete loan application and analysis of pertinent information, such as (but not limited to) credit history, income documentation, and property valuation. Subject to approval. Fees and restrictions may apply. See any FirstBank location for complete details.