New Small Business Lending Practices Promote Profitable Growth

Many small business lending institutions have been working tirelessly in order to improve upon and refine the many different types of commercial loans being offered in today’s marketplace. It seems as though recent financing trends are leaning towards establishing a borrower’s market by offering a variety of SBA loans, interest-only loans, and a number of conventional/traditional financing opportunities as well.

Regarding the specifics on each type of loan respectively, commercial loan rates may hinge upon a short-list of determining factors, which are standard operational guidelines for most, if not every small business lending entity.

SBA loan requirements, for example, will involve each prospective borrower’s ability to produce previous business and personal financial records in addition to having a detailed business plan. A small number of SBA loan applications have been previously denied for the following reasons: lack of detail, low credit ratings, and/or the inability to demonstrate how each intended business proposal will be able to sustain itself.

Loan to Value Ratios Provide Small Business Lending Options...

For those whose loan applications are approved, lower SBA loan rates can be solidified through higher down-payments and stellar financial records. With small business lending in general, prospective company owners may want to figure out the most effective ways to reduce their commercial loan rates before proceeding.

Two of the most commonly used SBA loans are the 7a (General Small Business Loan) and the CDC/504.

The 7a commercial loans setup entails the above-mentioned qualifiers, while the proceeds can be used to start and build a brand-new business from scratch, or assume the responsibilities of a battle-tested existing operation. Other aspects include the character and integrity of the operation, as well as its location. SBA loan rates will be determined by the loan recipient and the small business lending institution selected.

The CDC/504 SBA loan package allows borrowers to purchase land for a variety of purposes, such as renovating, remodeling, or upgrading existing structures. Proceeds can also be used for landscaping and/or parking lot construction, and street improvements as well. CDCs, or Certified Development Companies, are nonprofit subdivisions of the SBA loan program, and they work with certified SBA lenders to provide financing to company owners. With well over 250 CDCs nationwide, loan recipients will be matched according to their zip codes.

Small Business Lending Programs Offer Government Loans To Businesses

Aside from the 504 and the 7a SBA loans, interest-only commercial loans are also part of the small business lending arena. One of the main advantages to the interest-only arrangement is that the borrower can make much smaller payments in the beginning while increasing cash flow, which can be used towards the principal as the loan progresses.

Commercial loan rates will likely be higher than average, and once the interest-only period expires, total monthly payments will likely increase as well. It’s a good idea to know the pros and cons of each and weigh them heavily before making any commitments.

Lower risk-takers may be more comfortable with the five, seven, or 10 year conventional small business lending arrangements. In most cases, borrowers will opt for the fixed SBA loan rates as opposed to the adjustable kind. In either case, the 504 or the 7a SBA loan may be a perfect fit. Property purchasers looking to invest in heavy equipment for construction can take advantage of the CDC/504, while investors seeking to increase working capital may be much better off with 7a SBA loan.

When it comes to any of the above commercial loans, taking some extra time to ascertain the perks and pitfalls of each potential investment program may assist in narrowing down the choices. Many small business lending providers will also be there to lend a helping hand.