What do companies do if they need a large amount of money to grow their business? It depends. Some may opt for a business overdraft, and others may use lines of credit. However, many will rely on commercial loans. Some companies may use it to invest in new equipment and infrastructure; others may use it to hire new talents and grow their workforce.
Regardless of what is done with the money, being aware of what a commercial loan is and how it works is vital to maximise it fully. With that said, here is what you need to know about commercial loans:
What is a commercial loan?
A commercial loan is a large and long-term loan used by businesses for various reasons. A bank or financial institution may offer different amounts and terms. For example, some banks require a minimum loan amount of around $250,000, offering fixed and variable rates with terms lasting as long as 25 years. Other banks may require a minimum of $500,000 or even one million dollars with much shorter terms.
The right option depends on your needs. For this reason, it is important to do plenty of research regarding your offers to ensure you pick the right commercial loan.
Why do I need a commercial loan?
Commercial loans are commonly used to purchase properties. However, as mentioned in the introduction, there are many possible reasons to obtain a commercial loan. Again, you could use it for new equipment, new staff, purchase another business, and more. The most important part here is that you should know exactly what you want to use the money for, as the lender needs this knowledge to help them craft a deal for you.
How do I obtain a commercial loan?
To get a commercial loan, you must start with why you need one. Once you identify that reason, you will need to know whether you have the financial capacity to pay it off. This includes going through your financial statements and making sure the numbers support your efforts. You might also have to update your assets. These are things you will need to present to the lender so they can prepare an offer.
Note that there will be additional documents you must show depending on what you want to use the money for. For example, if you are planning to invest in commercial property, you need to prove the investment’s financial returns. On the other hand, if you are buying a business, you will need to show relevant documents to prove that it is profitable and can provide you with enough money to make repayments.
All in all, a commercial loan can play a vital role in any investment your company wants to make. It can provide a substantial amount of money needed to push your efforts toward success, provided you can cover the repayments.
That said, there are many other financing options you can consider, such as credit cards, overdraft, and even unsecured loans. Whichever you choose, it is important to read the fine prints to understand the terms and conditions, fees, and more to ensure you do not run into unpleasant surprises.
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