Commercial lending despite its many incentives is no walk in the park. In other words, there are things you need to understand as well as have on-hand in order to move forward with the commercial lending process and future business endeavor.)
As you know, commercial lending wants start-ups and well-established businesses to succeed. However, just like any other kind of lending or financing, there are requirements and regulations. Therefore, if you trying your hand at securing commercial financing, it may be helpful to know what those standard requirements and regulations are.
For instance, as a savvy business owner, you clearly understand what collateral is and how can be used to secure any kind of financing. But, when it comes to commercial loans, collateral is only a requirement if you are a newer business or rather start-up. The reasoning behind collateral in this instance is the simple fact that start-ups do not possess a long credit history. Moreover, speaking of credit, it is important to note that even a well-established business may need to rely on or resort to the use of collateral because they simply do not meet the standard requirement for above average business and/or personal credit.
Furthermore, collateral in the commercial world of lending does not always mean your house or car. In fact, most businesses that resort to using collateral to secure commercial financing use their business assets such as their accounts receivables. What is more that often a company’s accounts receivables are not enough, thus if you go this route you will likely have to pledge your accounts receivable, a percentage of your inventory and possibly even your personal assets like your home or vehicle. Consequently, when the term collateral comes up in reference to commercial financing it is important to know what that really entails.
Of course, there is much more to commercial financing besides above average credit and the possible need for collateral. For example, you will not get too far with your dreams of commercial financing if you do not have a solid business plan. Sure, there are some exceptions to this rule, but you are really only hurting yourself in the long run if you do not take the time to devise a clear plan for your financing. Moreover, you will be hard pressed to find a lending institution that did not want to know what your projected plans were with “their money”. Therefore, it is safe to say that a business plan is more than a requirement. Similarly, if you are using collateral and disclosing your credit history, you need to have complete documentation. This means details on all things financial, accounts receivable, accounts payables, tax returns, and insurance documentation—just to name a few.
Ultimately, these are just a few of the long list of requirements and regulations that you will come across during the lending process, but, nevertheless, these are the major requirements of most commercial financial institutions. Thus, you should have these above-mentioned things together before you take your potential business venture any further.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.