Getting a commercial loan from a bank can be a daunting and tiring process. Besides having to provide the bank with all of the required paperwork you have to know what type of loan your company needs as well as the amount of the loan. Let’s take a look at the different types of loans that your company may need.
LINE OF CREDIT
This is one of the most requested types of loans from a bank. The purpose of the line of credit is to provide funding for your company to pay bills for vendors and payroll until you collect money due from your customers (accounts receivable). A line of credit works like a charge card, you have a limit you can borrow up to. A revolving line of credit allows you to pay back and re-borrow against the line for the duration of the line. A non-revolving line means you can only borrow up to the limit one time. Most commercial bank lines are revolving lines of credit. Lines of credit typically are renewed at the bank’s discretion on a yearly basis after review of your most recent year end financial statements. Interest rates vary from bank to bank.
Term loans are used by owners to buy equipment for their company’s operations or to make improvements to their facilities. In some circumstances these loans can be used for working capital. The loan amount is repaid over a period of time usually tied to the useful life of the asset being acquired. If you are making improvements to your facility, the length of the loan may be longer. Interest rates vary from bank to bank and can be either fixed or variable.
This loan is used to purchase a commercial building. The loan is amortized over a number of years but typically these loans have a provision where the bank can call the loan. This provision can vary from bank to bank. The call provision means the bank can either keep the loan as it is or they can change the rate and/or terms. They can also demand that the loan be paid back despite having years left to pay it off. Interest rates can vary from bank to bank.
BANK SBA LOANS
SBA stands for Small Business Administration. They work with banks by providing a guarantee on loans banks make to small businesses. SBA will guarantee up to 85% of loans up to $150,000 and up to 75% of loans from $150,000 to $3,750,000. The purpose of the loan can be used for real estate acquisitions, equipment loans, working capital and inventory. The length of the loan is tied to the purpose of the loan. Not all banks participate in the SBA program so it is possible that your bank may not offer these loans.
If you have any questions about these loans or the commercial loan process, please contact our office for assistance.