Commercial Loan: What It Is, Types and How to Get One

A commercial loan provides the capital you need to run and grow your business.
Randa Kriss
Rosalie Murphy
By Rosalie Murphy and  Randa Kriss 
Edited by Sally Lauckner

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What is a commercial loan?

A commercial loan is debt-based financing that’s used to fund business expenses, like purchasing equipment or real estate. With a commercial loan, you borrow capital from a financial institution, such as a bank, credit union or private lender, and you repay it over time.

Commercial loans vs. business loans

In general, commercial loans and business loans are the same thing: money that a company borrows from a lender to pay for its expenses. Sometimes, these terms are used interchangeably, but that’s not always the case.

Within the financial industry, “commercial loan” tends to refer to products targeted at larger businesses. These loans are typically available in larger amounts and often require physical collateral. They may also have more in-depth applications and stricter qualification requirements.

A “business loan” or “small-business loan” on the other hand, refers to financing designed for smaller-sized companies. Compared to commercial loans, these products are usually available in smaller amounts and may have more flexible loan features.

How much do you need?

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We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

How do commercial loans work?

Commercial loans are typically structured as business term loans, in which a lender provides you with a lump sum of capital that you repay over a specific period of time, with interest. These loans may also be structured as lines of credit, however.

With a commercial line of credit, you have access to a set amount of funds that you can draw from and use as needed. You only pay interest on the money you use, and once you’ve repaid what you’ve borrowed, the credit line resets.

Commercial loan amounts, repayment terms, interest rates and qualifications vary largely based on lender and loan type.

Types of commercial loans

Some types of commercial loans are meant for specific purposes, such as:

  • Equipment financing. These loans can help you purchase large or highly specialized equipment for your business.

  • Commercial real estate loans. Similar to mortgages, these loans can help you buy or renovate property.

  • Commercial auto loans. These are used to buy vans, trucks or other vehicles for your business.

  • Commercial construction loans. Finance new building projects or major renovations with these loans.

  • Commercial bridge loans. This is a type of short-term financing typically used in commercial real estate to take advantage of an immediate opportunity and cover the gap until you can find a long-term option.

  • Commercial hard money loans. Hard money lenders focus heavily on the value of your collateral — usually commercial property or land — when underwriting applications, as opposed to more traditional loan requirements.

Bluevine - Line of credit
OnDeck - Online term loan
Funding Circle - Online term loan
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Where to get a commercial loan

You can get a commercial business loan from multiple sources. Factors like cost, funding time and your business’s qualifications can help you determine where to look.

Banks and credit unions

If you’ve been in business for at least two years and have good credit, commercial loans from banks or credit unions usually offer lower annual percentage rates, or APRs, than other business financing options.

However, the application process tends to take longer than it does with other lenders, and you may have to provide collateral.

U.S. Small Business Administration

The SBA works with many lenders — typically banks and credit unions — to offer several kinds of commercial loans. SBA loans generally have long terms and low interest rates; but to qualify, they tend to require several years in business and good credit like banks do.

These loans can also be slow to fund, although some preferred lenders offer expedited applications.

Online lenders

Online business loans can be approved more quickly than bank loans, sometimes within a day.

Online lenders typically have less stringent requirements, too, meaning you can qualify for funding if you lack collateral or haven’t yet been in business for two years. APRs tend to be higher, but so do loan approval rates.

Nonprofit lenders

Nonprofit organizations usually focus their lending efforts toward borrowers in their local communities, especially those who can’t qualify for traditional financing. These lenders offer a range of loan products, as well as business training and coaching.

Some nonprofit lenders also offer SBA microloans, which are available in amounts up to $50,000. These loans tend to have flexible qualification requirements and competitive terms.

If you’re just starting a business or can’t qualify for other options, you might consider nonprofit lenders in your area.

How to get a commercial loan

Follow these steps to get a commercial business loan.

1. Decide what type of financing is right for you

What kind of loan you need will depend on how much you need to borrow, how fast you need it and what you need to finance. For example, you’ll probably want a commercial real estate loan for a property purchase.

2. Figure out how much you can afford to borrow

You don’t want to take out a loan that you can’t afford to repay. You should look at your finances and determine what loan amount and payment schedule make sense for your business.

Note that shorter-term options may require weekly or daily payments, as opposed to monthly.

Use our business loan calculator to estimate your repayments.

3. Evaluate your eligibility

Although commercial loan qualifications vary from lender to lender, most will underwrite your application based on standard criteria: personal credit score, time in business and annual revenue.

In general, to qualify for a business loan from a traditional lender, you’ll need:

  • At least two years in business.

  • Good credit (a score of 670 or higher).

  • Strong annual revenue (requirements can range from $50,000 to $250,000).

Online lenders, on the other hand, may be more flexible. These companies may accept lower credit scores and less than two years in business.

4. Research lenders

Consider which lenders offer commercial loans you’re likely to qualify for and which offer the type of financing you need. Here’s a list of small-business lenders you can use to get started.

As you compare options, make sure to consider factors such as:

  • How much you can borrow.

  • Potential interest rates and fees.

  • Loan terms.

  • Application process and speed.

  • Lender reputation and customer service.

5. Apply for a loan

The commercial loan application process will depend on the lender you choose, but you’ll typically need to compile and submit the following paperwork:

  • Personal and business bank statements.

  • Personal and business tax returns.

  • Financial documents, such as balance sheets, income statements and profit and loss statements.

  • Description of collateral (if necessary).

  • Existing debt schedule (if applicable).

If you’re applying for a specific type of commercial loan, you may be asked to provide additional documentation unique to that loan type. Commercial real estate loan applications, for example, may require a real estate appraisal, a cost breakdown and a copy of any purchase agreements.

Once you’ve submitted your application, it could take anywhere from one day to several weeks for you to receive a decision, depending on the lender.

Alternatives to commercial business loans

If a commercial loan doesn’t make sense for your business, consider these alternatives:

  • Short-term loans. If you need to manage your cash flow or cover daily expenses — as opposed to finance a large project — a short-term loan may be a better option for your business. These loans or lines of credit are usually available from online lenders and fund quickly. However, as a result, they often have higher interest rates.

  • Small-business grants. If you want to avoid debt entirely, you might explore small-business grants for free financing. Although grant applications can be competitive, they’re a great solution if you can secure one. Grants are available from federal, state and local governments, as well as private corporations.

  • Business credit cards. If your business hasn’t been around long enough to qualify for a commercial loan, business credit cards can help you spread purchases out over several payments. Still, their relatively low credit limits may make it challenging if you need to finance a substantial purchase. You might also consider a personal loan for your business, which will likely offer a higher limit than a credit card but might come with a higher interest rate.

Frequently asked questions

Essentially, yes. Both of these terms refer to money that you borrow from a lender to pay for business expenses and pay back over time. However, sometimes “commercial loan” is used to describe loans for larger companies, and “business loan” loans for smaller companies.

A commercial loan is a good option to finance growth or expansion for your business. These loans can be used for a variety of purposes and are often available in large amounts. And, if you have strong qualifications, you’ll likely be able to access low interest rates and long repayment terms.

Many, but not all, commercial loans will require collateral. Traditional lenders are more likely than online lenders to require that you put up collateral to secure your loan.