Tactical Ways to Use a Commercial Loan

11 Jun

0
0
0
0
0
0
0
0
0
or copy the link

First year economics text books might tell you that any debt used to fund a growing asset is a good debt, but commercial loans need to be managed strategically. All financial products do not fit all businesses or all commercial circumstances. Similarly, there are more ways than one to fund your endeavors. Investors are an option that is often considered to offer entrepreneurs the best of what they need, while personal funds and investment capital come with their own hazards and advantages. In many circumstances, however, commercial loans offer more benefits than any other kind of debt. There are also more ways than one to improve funding options.

The Benefits of Commercial Loans

commercial loan
Debt capital usually offers between 15% and 18% interest, while equity rates offer a comparatively heavy rate of at least 25% annually. Business loans also offer a relatively high level of freedom. The only concern your banker has is that you repay your debt in a timely manner. Investors are more demanding, requiring proof of profitability while potentially playing a role in the management of the business they have invested in. A commercial loan also entails a limited timeline of commitment, ending as soon as the final penny has been paid. Investors are far more volatile, having the freedom to pull out of the deal as soon as their life circumstances change.

Getting the Most from a Business Loan

-1) Timely Access

The work required to exploit commercial loans most efficiently begins long before debt is needed. Those who develop relationships with their local banking staff are more likely to win funding without a long waiting period. The business’ credit rating is important for the same reason. The sooner entrepreneurs begin to build financial records under their company names, the sooner they build a financial history worth the funding they will need later. Without credit history, debt is not accessible, and too many small business owners fund their companies under their personal names for years before opening company accounts. Sole proprietors and CC owners should open business credit cards immediately upon business registration as a starting point for building their company’s financial history.

-2) Short Term Credit

Funding with short repayment terms is far less costly than those that are paid off over a period of years, particularly for companies that don’t qualify for better interest rates. In the business world, being able to leap at an opportunity the moment it arises is crucial to profitability, so high rates should not limit credit entirely. Instead, bridging products can be used when time is of the essence, and commercial loans can be applied for in the meantime. Other alternatives such as those outlined by Money Tips include acquisition loans and lines of credit.

-3) Due Diligence

The most common reason for the cancellation of loans is failure to perform due diligence. Not providing the correct documentation, not offering the collateral or lien position required, or failing to document the disbursement of the borrowed funds are needless but widespread causes for voided funding. Making sure every detail and document is there is a crucial step in obtaining a commercial loan.

Image credits: Stuart Miles / FreeDigitalPhotos.net 

 

 

No comments yet

Leave a Reply