As with most things, the answer to this question depends on whom you ask. For some getting a commercial loan is as easy as walking into any major lender and filling out a form. For others, it is a most time consuming and laborious procedure, due the presence of blemishes on their financial history.
The ease of getting a commercial loan is no different to that of applying for a conventional loan. There are two primary categories of commercial loans available; secured and unsecured, both of which come with their own terms, conditions and requirements.
What are the Differences between Secured and Unsecured Commercial Loans?
Secured Commercial Loans
Most commercial loans are issued in the form of secured loans. This is where the applicant provides security (i.e. assets) of sufficient value to cover the costs of the loan, as something of an insurance policy for the lender.
This security can take the form of anything the lender is willing to accept, but is usually something like a home or business property. The value of the asset will determine how much the applicant is able to borrow and can even influence the rate of interest they pay.
Secured commercial loans in general typically attach a lower rate of interest, due to the fact that there is a very little risk of capital loss for the lender. It is also possible to qualify for a secured loan with poor credit, no formal proof of income or a history of bankruptcy.
The assets used to secure the loan are at risk of repossession, in the event of non-repayment as agreed in the loan contract.
Unsecured Commercial Loans
To qualify for an unsecured commercial loan, you need to demonstrate your creditworthiness and strong financial position to the lender. This is due to the fact that no security is required to cover the costs of the loan.
An unsecured commercial loan application is usually much quicker and easier to complete than a secured loan application. It can also be the ideal facility for smaller and newer businesses, which may not have the on-hand assets needed to qualify for a secured loan.
There is also no risk of property repossession, but unsecured loans are rarely available in sums of over £50,000. In addition, interest rates and borrowing costs on an unsecured loan may be slightly higher.
A Case of Qualification Criteria
Whether any given applicant is able to qualify for a commercial loan will be determined entirely by the unique policies and lending criteria of the issuer in question.
Generally speaking, you will need to provide evidence of your fairly strong financial position at the time of your application, indicating your capacity to repay the loan on time.
Your creditworthiness and on-hand assets will determine whether a secured or unsecured loan is the better choice for your requirements.
Before applying, consult with an independent broker to discuss the available options and ensure you get the best possible deal from a reputable lender.