Does Your Business Need Commercial Lending?

Many American businesses depend on debt financing to reach their objectives and pay for important capital expenses. Since we cover several business law topics on this blog, we believe it’s important to include some information on this common financing element.

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Does your business operate through commercial lending? Then read on to learn more about this topic.

What is Commercial Lending?

Commercial lending is the process by which a business obtains its revenue by borrowing money. They then use this to pay for operational expenses, equipment, and even real-estate purchases.

As a side note, this differs from companies that “go public” and sell common or preferred stock in the equity markets like the NASDAQ or S&P 500. Most large companies raise at least some revenue through either debt and/or equity.

Securing Debt Financing

There are several ways to borrow money for a business. We’ll cover the most common means of doing this.

Hard Collateral or Asset Based Lending

This is one of the most typical ways to secure a business loan. Since many companies possess some kind of hard capital or assets, like equipment, inventory, and/or accounts receivable, they can leverage them to their advantage and obtain a loan with it. Of course, if a business fails to repay a loan, it would forfeit the collateralized asset.

This is the way to secure many loans and it helps to have this component, especially with a less than stellar credit score. Doing it this way is flexible and can help you eschew several formalities associated with other credit sources.

Borrowing From a Traditional Bank

Speaking of credit scores, if you elect to get a bank loan for your business, it will come into play much more. The most reputable banks have lucrative opportunities but might expect a score beyond 650. Whereas you may find more options with smaller lending institutions.

Also, expect banks to scrutinize your background and require much more paperwork than other lenders.

Loan Terms

You generally don’t get to hold onto commercial loans as long as you would your home mortgage. The most common length of the loan term is between roughly one to five years. Going beyond the term limit may incur penalties up to and including having your business halted.

Kenneth J Nota & Commercial Lending Counsel

Given the seriousness of commercial lending, it’s prudent to have wise counsel on your side before securing a loan. Don’t forget that signing up for a loan is just as legally binding and consequential as any other contract (and it may involve millions of dollars). Therefore, we encourage you to call our office for assistance navigating the loan process.

Kenneth J Nota has multiple decades of experience practicing business law in private practice and within corporate institutions. His firm is a proud member of both the Manatee and Sarasota county Chambers of Commerce. If you’d like to learn more about his services, please call 941-309-5270.