Commercial loans are one of the most popular loans for entrepreneurs who want to start a new business or want to expand an existing one. A new venture necessitates a large inflow of funds. However, a large number of commercial loan applications are rejected both in the US and UK because people just do not understand the niceties of this type of loan.
A commercial loan is a loan that is primarily sanctioned for a specific business purpose. These loans are meant to encourage entrepreneurs. Why then do so many loans get rejected?
1. Typically, most loan officers put loan applicants through the grind. Loan officers are paid to review applications and identify those that are most deserving. A review typically begins with two demands: one is for a business plan and the next is for copies of previous tax returns. So, the first step is to prepare a business plan, even in cases where the business is not a startup. This will convince the lender of the credibility and authenticity of the borrower.
2. Sometimes, lenders are dissatisfied with the tax returns submitted by the applicant. Under the specified guidelines of the lender, such a business is not eligible for a commercial loan. One typical problem is related to the net income of the business once deductions have been subtracted.
3. In some cases, the lender may be unable to give commercial loans for a particular type of business. For examples, most lenders do not offer financing for bars and restaurant properties. Another example is auto-service, which is slapped with a large number of environment regulations. Some commercial loans are special loans by their very nature. These include funeral homes, churches and gas stations. In this case, it is necessary to approach other lenders beyond traditional commercial lenders. Where traditional lenders do not grant the requested loan, a non-traditional commercial lender is the best option.
4. When a business requires a loan for expansion purposes, it is necessary to convince the lender that they should invest money on the business. This is difficult if profits from the business are not very encouraging. Lenders need to make loan decisions based on the borrower's ability to generate cash and repay the loan along with the interest. The key is to emphasize the achievements of the business. In case the business has lost money, it is necessary to know why there has been a loss and what steps are being taken to rectify mistakes. Lenders look for a number of factors like business plan, leverage ratio and growth rate of the company.
5. Sometimes, borrowers do not have sufficient collateral. It could be that the lender does not have sufficient knowledge of the value of equipment or machinery. In any case, lenders rarely lend the exact dollar for dollar amount against collateral. Even when they are convinced of the value, lenders have to follow rules pertaining to loan-to-collateral ratios.
A commercial loan is a loan that is primarily sanctioned for a specific business purpose. These loans are meant to encourage entrepreneurs. Why then do so many loans get rejected?
1. Typically, most loan officers put loan applicants through the grind. Loan officers are paid to review applications and identify those that are most deserving. A review typically begins with two demands: one is for a business plan and the next is for copies of previous tax returns. So, the first step is to prepare a business plan, even in cases where the business is not a startup. This will convince the lender of the credibility and authenticity of the borrower.
2. Sometimes, lenders are dissatisfied with the tax returns submitted by the applicant. Under the specified guidelines of the lender, such a business is not eligible for a commercial loan. One typical problem is related to the net income of the business once deductions have been subtracted.
3. In some cases, the lender may be unable to give commercial loans for a particular type of business. For examples, most lenders do not offer financing for bars and restaurant properties. Another example is auto-service, which is slapped with a large number of environment regulations. Some commercial loans are special loans by their very nature. These include funeral homes, churches and gas stations. In this case, it is necessary to approach other lenders beyond traditional commercial lenders. Where traditional lenders do not grant the requested loan, a non-traditional commercial lender is the best option.
4. When a business requires a loan for expansion purposes, it is necessary to convince the lender that they should invest money on the business. This is difficult if profits from the business are not very encouraging. Lenders need to make loan decisions based on the borrower's ability to generate cash and repay the loan along with the interest. The key is to emphasize the achievements of the business. In case the business has lost money, it is necessary to know why there has been a loss and what steps are being taken to rectify mistakes. Lenders look for a number of factors like business plan, leverage ratio and growth rate of the company.
5. Sometimes, borrowers do not have sufficient collateral. It could be that the lender does not have sufficient knowledge of the value of equipment or machinery. In any case, lenders rarely lend the exact dollar for dollar amount against collateral. Even when they are convinced of the value, lenders have to follow rules pertaining to loan-to-collateral ratios.