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Home Commercial Loan Basics Logistics of Commercial Loans
Logistics of Commercial Loans PDF Print E-mail

Evaluate business needsYou should carefully consider both your need for a commercial loan and your ability to obtain one before seeking financial assistance. It will take considerable effort to gather all the data you need and fill out the required forms and applications. If you have any questions concerning this decision you can contact one of our representatives and obtain their experienced help, or send us an email with any questions you may have.

 

The first step is to thoroughly assess your current financial needs. Determine why you need the money and how you will spend it, how much you need, and when you need it. You must put together a good plan for using the loan proceeds, and a schedule for completing the planned project. You may have to perform a detailed analysis and obtain professional estimates to determine how much money you need. There will be other expenses to consider,including loan processing fees, closing costs, property survey, property appraisal, environmental report(s), and legal fees.

 

Inflation can also play a role in the amount of money you need, especially if you will be spending it over a long period of time. You should always get the least amount of money necessary to fulfill your business needs.

 

When you get a loan can affect the interest rates that you will receive and therefore the amount of money you will have to pay back. You should apply for a loan far enough in advance so that you have the money when you need it. You must also look at possible loan term and amortization scenarios which determine how long you will have the loan and the amount of your payments.

 

The second step is to determine whether or not you will be able to get the loan you need. Thanks to the recent economic crises the world experienced, it is harder than ever to get a commercial loan. World Net Capital I will perform a preliminary screening to determine if you may be eligible for the loan. You will have to submit your data and information to us so that we can evaluate your ability to get the loan using criteria established by our lenders. The information needed includes, at a minimum, the purpose of the loan, the amount of money you need, available collateral, your business’ historical and current financial analysis, existing or projected cash flow, your credit history, and your management team credentials. We use this information to determine the risk associated with your business, your ability to repay the loan, the state of development of your business, your credit rating, your management experience and character, the amount of collateral and equity you have, and of course, the required loan amount.

 

Your business history, or the length of time your business has been in operation and it's financial performance, an important factor. Businesses that have been operating for less than two years can have a harder time securing a good commercial loan or interest rate because they have a higher perceived risk.

 

Collateral is a very important factor when considering a commercial loan. Collateral can be business assets and/or personal assets that can be sold in case the cash generated by the business isn’t sufficient to repay the loan. All lenders require some collateral, and it's usually the business assets. If you have no collateral, you may need a co-signer who has collateral to pledge. A complete appraisal of the collateral has to be made to determine its value. The value is typically not the market value of the asset, but rather a discounted value that could be realized if the assets had to be liquidated; the discounted value is usually somewhere between 50% and 75% of the appraised value. The commercial land and any tangible improvements on the land can be used as collateral, including buildings and equipment.

 

You will have to prepare a business plan and perform a financial analysis of you business, including a cash flow analysis, to demonstrate that the business income can support repayment of the loan. The loan will have a definitive affect on your business. Interest is a deductible expense and will reduce your tax burden, but will increase you expenses. The addition of a new facility or new equipment will increase your depreciation allowance which will also reduce your tax burden. However, principal payments will come directly out of your after-tax cash, reducing the amount of money you will have in your pocket. Evaluate whether you really need more capital or whether your existing cash flow can be made to work. If you do need a loan, you should plan ahead so that you will have the cash on time. World Net Capital I can help you with your decision making process and charges no application fees for a loan application or for help in determining if you will qualify for one of our loans. We can prepare a business plan and cash flow analysis for you at a reasonable cost if you need help.

 

cash flow is criticalCash flow is the amount of cash, or profit, that your business has at the end of a given period of time. It’s the amount of money that you can take from the business after all expenses, taxes, principal payments, and dividends are paid. We use this number to evaluate your ability to repay the loan and maintain sufficient cash on hand to operate. In the case of an existing business we will look at actual cash flow and expected future cash flow. In the case of a start-up business we will look at your projected cash flow and how realistic it is.

 

Your credit history is evaluated by looking at business and personal credit reports to make sure that the owners and business are credit worthy, and that they have repaid previous debts and loans in the past. You can check your credit report easily using free credit report.com. For $1, you can have a credit report generated instantly in ".pdf format" which you can print or save on your computer.

 

Your management team is an important factor in our decision process. Effective management is an important element of any business. We need to know that you have the ability to manage your business, and that the management team has reputable character. Our lender wants to know that the management team is adequate and capable of operating the business and that the business is being operated in an ethical manner. This information may affect how our lender underwrites the loan.

 

The amount of risk associated with your business can affect the cost of your loan and available financing alternatives. Generally loans will be more costly (i.e. higher interest rate) for start-up businesses and expansion of an existing business. But these two types of loans usually have the most urgent need.

 

If you have collateral, a good credit history, a sound and profitable business plan, and an experienced management team, then you should qualify for a commercial loan with good interest rates.

 

financial analysis must be performedAs you can see, getting a commercial loan involves many factors. The most important ones are the amount of money you need, your down payment, your cash flow, future business financial projections, business history, and the strength of your company's management team (owners or key members). Before you decide to get a commercial loan, you should carefully consider all these factors and be prepared to submit enough information so that we can evaluate and process your loan with no upfront fee.

Last Updated on Wednesday, 11 September 2013 16:35
 

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