Getting favorable terms for a commercial loan is usually not difficult due to the variety of lenders there are to choose from. By allowing commercial banks, credit unions, mortgage companies and hard money lenders to compete for your business funding, you have the advantage of choosing which terms are best for the growth of your company. Since the fee structure will vary depending on the entity, make sure to review all of the costs associated with the loan before you choose a lender.
Commercial banks are the most popular source of business lending. They have vast resources to use for loans of almost any size. The structure of your loan is based on your overall financial profile, credit rating, and the type of collateral you are using for your loan.
If you already have an established loan relationship with a commercial bank, you may be able to get a better rate than what a non-customer would receive. Banks will also take into consideration your deposit account size when they review your credit request.
Credit unions did not used to make commercial loans, until regulatory requirements changed. They are now a major source of business funding, and all you need to do to apply is become a member of the particular credit union you are interested in for your funding.
A credit union is a non-profit organization owned by their members, so many times the rate they charge for a commercial loan is less than what most other sources charge. This has allowed them to grab a fair share of the commercial lending market, which further increases the types of financing they are able to offer.
Mortgage companies can be the lending arm of a large bank, or a smaller bank or brokerage company. The commercial loan package they can offer varies depending on the company. There are times when a mortgage company will be able to provide you with a better offer than a commercial bank or credit union, simply because they have contacts already in place with a variety of banks from which they can choose the best terms that are available.
A mortgage company can save you time by shopping for the best loans, and then letting you pick which one is the most cost-effective for your business. There are additional fees for this convenience, so be sure to account for the added costs when you are considering the source of your funding.
Hard Money Lender
A hard money lender is a lending company that makes short-term collateralized loans to qualified applicants. The interest rate is usually higher than most other commercial loan sources since a hard money lender is not overly concerned with the creditworthiness of the borrower.
The focus of a hard money lender is the loan-to-value ratio, and keeping that as low as possible to reduce their risk. Therefore, a down payment is usually required in the range of 30 to 40 percent in order to receive funding.