Commercial loans are types of bank loans which are granted to several business entities. These are provided to help an organization with funding for short term in order to facilitate operational functions like buying supplies for use in goods production and manufacturing or meeting payroll. A commercial loan is also utilized for purchasing new machinery which is directly linked with business operations.
A commercial loan is frequently taken as a short term cash source for running of a business. Some of the banks provide a commercial loan format termed as a renewable loan. Renewable loans permit the enterprise to obtain the required funds, pay off the balance within stipulated terms and subsequently roll it for a second or renewed loan period. This form of commercial loan is often utilized when an organization requires funds for securing resources in order to manage huge seasonal orders from clients while still offering goods to several other customers.
How is commercial loan processed?
Most lenders want to prequalify the prospective borrowers for determining their exact affordability. This gives both the borrower and the lender a chance to evaluate which loan plan should be ideal to cater to one’s requirements. Basic information relating to income and current debts should be supplied by the borrower. After that, one has to fill in the application form details and then submit it.
As with majority of loans, an applicant’s credit worthiness is a major factor in the process of obtaining a commercial loan. The business should present documentary evidence to prove regular cash flow, thus building confidence in the lender about the borrower’s capacity of repaying the amount.
After receiving the loan application, a loan officer will go through the borrower’s credit reports, availability of collateral as well as his/her income. Sometimes an additional documentation in the form of personal financial evidences or statements is also required.
If you are going for a purchase of real estate, you may even require submission of preliminary reports on the environment, area maps, property appraisals, title reports and also lease summaries. In case you are taking the help of a broker, he or she generally packages the loan request and submits it to many lenders for getting approved.
Subsequent to your submission of the commercial loan plan to the concerned authorities, the processor presents to you a term sheet or a “letter of intent”. This is a document formally intended to make sure that the loan provider and your organization are following identical plans of action. During the process of underwriting, you may require to furnish extra documentation.
After you choose the ideal offer you have to sign and return the final “letter of intent” in addition to a check for depositing or paying for reports of third–party.
Successful completion of third–party reports along with satisfactory underwriting conditions, should be followed by resubmitting of the loan package for the last approval. The lender thus issues a final loan commitment.
Understanding the entire process will help reduce some of the anxiety associated with waiting for a commercial loan to be approved.