Grow faster with a commercial business loan

When you need capital for your business, a commercial business loan can give you the boost you need to invest, expand and accelerate your growth.  

Unlike small business loans, which are generally geared towards start-ups or smaller companies, commercial loans are often larger, more complex, and designed to meet the specific needs of established businesses.

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What are commercial business loans?

A commercial business loan is a form of funding specifically tailored for companies looking to finance significant business activities.

Whether it's acquiring a new office space, expanding operational capacity, or refinancing existing debts, these loans offer the flexibility and capital needed for substantial business ventures. For that reason, commercial business loans often come with higher borrowing limits and may require more extensive collateral or a stronger credit history.

How do commercial loans work?

The process begins with an application where the business provides details about its finances, purpose for the loan, and collateral if required. 

• Lenders then assess the business's creditworthiness, including factors like credit history, cash flow, and the value of any assets offered as security.
• Once approved, the loan is disbursed in a lump sum, and the business agrees to a repayment schedule that includes both principal and interest. 
• The terms can vary widely, with some loans offering fixed interest rates and others having variable rates. 
• Repayments are typically made monthly, and businesses must adhere to the agreed schedule to avoid penalties. 

Commercial loans are usually long-term, often ranging from 5 to 20 years, allowing businesses to manage large expenses while maintaining cash flow for day-to-day operations.

What are the types of commercial business loans?

Commercial business loans cover a range of financial products which offer different terms, repayment structures and capital opportunities. The right choice will depend on what you intend to use the money for and for how long, as well your business’s financial position.

1. Working capital loans: Working capital loans are designed to cover day-to-day operational expenses. They are usually short-term loans and typically repaid within a year. These are especially useful for businesses with variable cash flow cycles, or those facing unexpected expenses that need short-term capital to plug a gap.
2. Commercial mortgages: Commercial mortgages are specifically used to purchase or refinance commercial property. These loans are long-term and can cover significant amounts.
3. Bridging loans: Commercial bridging loans are another type of short-term loan, but focused on bridging the gap between the purchase of a new property and the sale of an existing one.
4. Equipment financing: As the name suggests, equipment finance is a form of asset finance designed for purchasing new equipment or machinery, often secured against the asset being financed.

What’s the difference between business loans and commercial loans?

While the terms business loan and commercial loan are often used interchangeably, there are distinct differences.

1. Scale and purpose: Small business loans are usually for everyday business expenses, while commercial loans are for larger, long-term investments like property acquisition or major equipment purchases.
2. Borrowing limits: Commercial loans typically offer higher borrowing limits, reflecting the larger scale of the business activities they support.
3. Collateral requirements: Commercial loans often require collateral, such as property or significant assets, due to the higher risk and larger amounts involved.
4. Interest rates and terms: Interest rates for commercial loans can vary widely based on the borrower’s creditworthiness and the loan's purpose. Terms are often longer, reflecting the time needed to see a return on the large investments these loans fund.

How do commercial business loan rates work?

Interest rates for commercial business loans depend on several factors, including the type of loan, the financial history of the business, and the amount of collateral offered. 

Generally, the larger the loan and the better the credit score, the more favourable the interest rate.

1. Fixed vs variable rates: Fixed rates remain constant throughout the loan term, providing predictability in repayments. Variable rates can change based on market conditions, which could be beneficial or risky depending on the economic climate.
2. Comparison: It’s advisable to compare different lenders to find the best rates. Many financial institutions offer commercial business loans, and the interest rates can vary significantly between them.
3. Rate calculators: Using an online commercial business loan calculator can help you estimate the monthly repayments based on different interest rates and loan amounts. This is an excellent way to gauge affordability before applying.

Can I get a commercial business loan with bad credit?

Obtaining a commercial loan with bad credit can be challenging, but it's not impossible. Lenders – particularly alternative lenders – may consider other factors beyond credit scores, such as the value of the collateral, the business's cash flow, and its overall financial health.

1. Secured loans: Offering more collateral can offset a low credit score for a secured loan. Lenders are more willing to take risks when they have assets to back the loan.
2. Alternative lenders: While traditional banks may be hesitant to lend to businesses with poor credit, alternative lenders often have more flexible criteria.
3. Credit improvement: Before applying, consider how to improve your business credit score. This could involve paying off existing debts, reducing credit utilisation, or resolving any discrepancies in your credit report.

Commercial business loans for small businesses

Even though commercial loans are generally aimed at larger companies, small businesses can still benefit from them under certain circumstances. For example, a small business looking to purchase a new building or expand its operations significantly might find a commercial loan to be the best option.

1. Eligibility: Small businesses may qualify for commercial loans if they have a solid business plan, good credit, and adequate collateral.
2. Advantages: These loans can provide the large capital amounts needed for significant investments that smaller loans cannot cover.
3. Challenges: Small businesses might face stricter scrutiny when applying for commercial loans, especially regarding their financial history and projections.

Commercial business loan calculator

A commercial business loan calculator is a useful tool for estimating your loan repayments. By inputting the loan amount, interest rate, and term, you can get a clear picture of what your monthly payments will look like. This helps with:

1. Accurate budgeting to find out what you can afford to borrow and repay each month.
2. Comparing different loan options by adjusting the variables to see how different rates or terms will impact your repayments.
3. Working out your decision on whether to pursue a loan or consider alternative financing options.

Check our iwoca’s commercial business loan calculator here

Finance your business with a commercial business loan

If you’re looking to borrow up to £500,000, an iwoca  Flexi-Loan can help you get funded fast, without the need for collateral or long applications.

• It’s easy to apply, just give us some basic details on your business and you could be approved within 24 hours
• Only pay interest on the amount you actually draw down; however, for business loans with a repayment period exceeding 12 months, an additional drawdown fee will apply.
• There’s no charge for early repayments and we’ll always explain the terms up front. 

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