How to apply for a commercial loan

It can be helpful to understand the key terms you may come across when seeking a commercial loan, these include:

• The borrower: That’s you! You’re the business and you receive the loan. This is true whether you’re a limited company or a sole trader. 

• The lender: That’s who sends you the loan, you’ll usually need to liaise with them to organise repayments and you should always read the terms and conditions they send you.

• The broker: That’s us – we help you find a suitable loan for your needs.

• Collateral: Putting an owned asset up as security against a loan can help gain you better terms, such as lower interest rates. The asset is considered collateral.

• A personal guarantee: Sometimes, like with a start up loan, it may be difficult for you to gain funding exclusively as a business. In that case, you could choose to seek a commercial loan that requires a personal guarantee, which means you are personally liable to repay the loan even if your business closes down.

• Term: That’s how long you have to repay the loan.

The application process generally depends on the type of loan. However, as a rule of thumb, you’ll usually need to choose the loan you’d like to attain first, then speak to the lender either through an online portal or via a traditional brick-and-mortar method, submit details about your business, and then…wait.

Exactly how long you wait for approval could be anything from a few minutes to a few months.

While you wait, the lender will create a picture of your creditworthiness. Creditworthiness is an assessment of how likely you are to repay the loan. This assessment is made up of a range of factors, including your past track record with loan repayments, how regularly you pay your bills, and your business plan.

Once the lender has come to a decision, they’ll get back in touch either with further questions or to release the funds.

Brokers like Funding Options by Tide can help speed up the commercial loan application process by assessing your eligibility and presenting you with your options in a clear, easy to digest format. We can also help you compare interest rates, loan conditions, and terms.

Click here to begin your application.

There are also a few drawbacks you should bear in mind:

• Risk of default: If you don’t repay your commercial loan in time, you run the risk of defaulting which can have severe consequences on your ability to seek additional funding in the future.  

• Repossession: Some types of commercial loans bring with them the risk of repossession if you do not keep up with repayments. For example, if you take out vehicle finance and don’t make the monthly repayments, the lender may take back the vehicle which could impact your ability to operate your business.

This depends heavily on the lender, borrower, and their agreed terms, but generally, you repay the loan or value of the extended product, additional interest in the form of a percentage, and you may also need to pay admin fees or legal fees.

Example: Let’s say you take out a £1000 loan spread over 12 months at a 5% fixed interest rate. In that case, you’d pay back £87.50 a month. In addition to the £1000, you’d pay £50 in interest. On the other hand, if you take out a £1000 loan spread over 12 months at a 5% APR (annual percentage rate) you’d pay back approximately £85.61 a month and pay around £25 in interest.

Real estate commercial loans can feel like their own beast. Here are a few of the different types of property loans you might like to look into to help meet your real estate goals.

• Bridging loans: This is a short term loan designed to bridge the gap between finding a property you’d like to buy and gaining the full funding to acquire it by selling an existing property or getting approved for a mortgage.

• Commercial mortgages: This type of loan can be used to help you buy a property that will be used for commercial reasons, for example, an office space or new company premises.

• Semi commercial mortgages: Some commercial spaces double up as residential homes. Semi-commercial mortgages help you acquire a property that serves as both.

• Auction finance: Auction houses often require you to make the payment quickly, auction finance is here to help.  

• Property development finance: This form of financing can be used to help power development projects, for example, construction or renovation costs.

There are several considerations you should undertake with careful thought. These include:

• Terms and Conditions: Consider the loan agreement carefully. Take a fine tooth comb to the terms and conditions – assess the term length, the interest rates, and what happens if you default, then decide if you’re comfortable with those terms.

• Collateral: If you’re putting up collateral or security in order to gain the loan, consider the legal implications of this and decide whether you’re truly comfortable with the risk. Don’t forget, the economy can face down turns and businesses can undergo peaks and troughs. Consider how you will repay the loan if your business is impacted by any possible changes.

• Personal guarantee: Check if your loan requires a personal guarantee. If it does, consider the legal implications of this. Can you repay the loan if your business cannot? Are you prepared for the risk of what could happen if you are personally liable to meet all the payments?

It’s an exciting time for lending. Here are some of the trending technology innovations we are experiencing:

• Blockchain: Ever heard of crypto? Most people have at this point. Blockchain – the technology that powers crypto – has a wide variety of use cases including lending.

• Open finance: Open finance helps smooth out the transfer of data, improving the loan application and approval process for borrowers and lenders alike.

• P2P lending: This trend enables individuals to borrow from one another through online platforms.