COMMERCIAL LOANS: STARTING CAPITAL FOR YOUR BUSINESS

2007-06-20 15:49:53

( Financial )



In today’s economic structure, channels for small and local business are steadily growing. This is as a result of various kinds of financial assistance from different organizations to support new attempts to set-up new business.

Credit created as a loan is a major and most extensive way of financing a new business. Once an agreement to lend money is reached between a creditor and debtor in exchange for future reimbursement, with accrued interest, it becomes a loan. The creditor will not benefit from any claims of ownership in the debtor’s business.

Where To Apply For Commercial Loans

There are many financial institutions that provide commercial loans for financing a new business.

i) Banks. Traditional savings banks, savings and loans as well as commercial banks can be approached for commercial refinance. Depending on the loans they offer, banks can be divided into the following categories.
a) Large commercial banks are possible channels of financing for the best credit risks. This is not an appropriate avenue for applying for commercial mortgage loans.
b) Small community banks are still the best choice for the standard new businesses. New businesses may set-up current relationships with these banks.

ii) Credit Unions. These are financial institutions managed and owned by a group of personnel of an organization. In general, provisions offered to members are generous but mostly composed of consumer loans. Though the amount may be sufficient, this may be helpful in start-up business.

iii) Consumer Finance Companies. This institution provides minimal, secured, higher-interest individual loans to higher-risk lenders. For this reason, borrowers for their commercial loans do not regularly choose consumer finance companies.

iv) Commercial Finance Companies. These companies would rather suggest loans secured by commercial possessions. These loans are ideal for conventional businesses, not for commercial loans for initial business.

Requirements For Applying For A Loan

The loan approval process requires the collection and submission of substantial amount of documents. For new businesses, you need to complete the following minimum required documents:

i) Your personal report of finances (lender’s customized form) and individual federal income tax returns (one to three years)

ii) Expected set-up fee assessment

iii) Anticipated balance sheets and income statements (twenty four months)

iv) Statement of probable cash flow (minimum for the first year)

v) Certified interests of ownership in assets and collateral

vi) A business plan that provides an explanation of the particular use for the funds requested, how the commercial loan will support the business, how the borrowed funds will be returned (the source of funds and length of repayment period). You should also identify the assumptions you devised in the development of your projected financial statements. Likewise, your individual resume as well as a written report of relevant previous business experience should also be submitted. Submission of referral letters also boosts the chances of your loan being approved. A graphical form containing details of breakeven and other financial projections are sometimes requested.


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