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Exploring Common Types and Providers of Commercial Loans Among the various challenges associated with running a small business is securing a loan. Some entrepreneurs do need outside help with financing so they can grow their businesses and pay for their day-to-day costs, including inventory and payroll. However, it’s not always easy to get approved for a commercial loan. But knowledge can make everything more manageable. If you’re thinking of applying for a commercial loan, you can start by learning about your choices of providers. such lenders have a whole variety of products, like lines of credit, accounts receivable financing, and term loans. If you choose the provider that fits your needs and situation the most, you’ll have a greater chance of nailing that loan. The following are the three major routes to financing available nowadays:
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1. Banks
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Typical bank options include term loans, lines of credit and commercial mortgages. The U.S. Small Business Administration provides general commercial loans through banks, with its 7(a) loan program, disaster loans and short-term microloans. SBA loans can go from a minimum of around $5,000 to a maximum of about $5 million, with a $371,000 average loan size. Due to low cash reserves and sales volume, small business usually find it harder to get approved. While processing time takes about 2 to 6 months – the longest compared to the other options – banks usually offer the lowest APR. State and local governments may also provide financial assistance, so it’s good to check out the SBA’s Loans and Grants Search Tool to look for financing programs. 2. Microlenders Microlenders are nonprofits that usually lend short-term loans up to $35,000. Microlender loans usually come with a higher APR in comparison to bank loans. Application can be a lengthy process that requires an in-depth business plan, financial statements, along with a description of the purpose of the loan. These loans are chiefly intended for smaller startups or businesses that banks will likely reject for various reasons, such as lack of collateral, poor personal credit or short operating history. 3. Alternative Lenders Alternative lenders offer commercial loans and lines of credit from $500 to $500,000. Average APR for these loans is 7% – 113%, depending on such factors as the lender, loan size and type, length of repayment term, whether or not there should be collateral, and the borrower’s credit history. When it comes to APR, these lenders can be competitive with banks. When you know the lender type and financing option for you, you’d like to have two or three options for comparison based on annual percentage rate or total borrowing cost and terms. And of course, shopping for a commercial loan should be just like shopping for a house. Of all the loans you’re qualified for, go for the one with the lowest APR.