Fundera business loans
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Commercial loans help businesses cover big expenses like expanding, buying property, upgrading equipment or managing cash flow. They work best for short-term needs and established businesses, not startups.
These loans usually come from banks, credit unions or online lenders and often require collateral, paperwork and meeting certain financial terms. Before applying, make sure you understand how the loan works, what it costs and what’s required to qualify.
Commercial loans can help a business grow, stay stable or invest in big projects. Lenders want to see that the loans will help the business earn more money, run more efficiently or increase the value over time. Here are common ways businesses use these loans:
Lenders scrutinize each use case differently. Asset-backed purchases tend to receive more favorable terms, while working capital or intangible investments may require stronger financials or guarantees.
Each loan type is designed for a specific business use case, with distinct underwriting standards and repayment expectations.
| Loan Type | Typical Use | Repayment Terms | Collateral | Loan Amount | Interest Rate |
|---|---|---|---|---|---|
| Commercial Real Estate Loan | Purchase or refinance property, including offices, warehouses, and retail space | 5 to 20 years, often with balloon payments | Real estate, usually capped at 70%-80% loan-to-value (LTV) | $100,000 to $10M+ | 5% to 10% (fixed or variable) |
| Term Loan | Business expansion, equipment purchase, or working capital | 1 to 10 years, fully amortizing with fixed or variable rates | Equipment, receivables, or business assets | $25,000 to $5M+ | 7% to 60% (fixed or variable) |
| SBA 7(a) Loan | Business acquisition, real estate, or equipment financing | 7 to 25 years, depending on loan purpose | Real estate, equipment, or other business assets | $50,000 to $5M | 10.5% to 15.5% (fixed or variable) |
| Commercial Construction Loan | Building new facilities or renovating existing structures | Short term, interest-only during construction, followed by conversion to permanent financing | Real estate or property being developed | $500,000 to $10M+ | 4% to 12% (variable) |
| Business Line of Credit | Short-term working capital needs, seasonal cash flow | Revolving, typically renewed annually | Receivables, inventory, or business assets | $10,000 to $500,000 | 8% to 99% (variable) |
Commercial loans are offered by a range of lenders and financial institutions, each with its own underwriting standards, timelines and levels of flexibility. Understanding who you’re borrowing from can help you anticipate the tradeoffs in speed, cost and structure.
Choosing the right lender depends on your timeline, the strength of your financials and the complexity of your financing needs. A well-capitalized business with strong credit sees the most competitive options from traditional lenders. For faster access or less conventional needs, nonbank lenders may be more realistic.
"Banks and credit unions usually offer the lowest rates, but they also move incredibly slowly. They have strict requirements, long processes and often want collateral. If you don’t check all their boxes, it’s tough to get through.
Private credit, on the other hand, is much faster and more flexible. It costs more, but it’s built for speed and access. You’re not jumping through a million hoops. You can get funding without putting up your house or waiting weeks. They’re not tied to banking regulations, either, so they can continue to lend during times of economic uncertainty.
Bottom line: apply to a few different lenders, compare the offers and pick the one that aligns with your business goals — not just the lowest rate. The right fit matters way more than just the cheapest option."
Loan approvals hinge on the 5 C’s of credit: capacity, capital, collateral, character and conditions. Expect a thorough review of business and personal financials, particularly for loans over $250,000.
"When we needed working capital for inventory expansion at the dealership, I learned that demonstrating manufacturer relationships and allocations carried more weight than traditional collateral. Banks understood that GM/Buick backing meant predictable cash flow cycles. This translated directly to better terms — we secured a $2.8M floor plan facility at prime + 0.5% versus the standard prime + 2%.
The biggest mistake I see clients make is treating commercial lending like residential mortgages. Commercial lenders care about your business relationships and market positioning more than personal credit scores … My advice: bring your business network to the table, not just financial statements."
Most commercial loans require a down payment or equity contribution, especially when financing real estate, equipment, or acquisitions. The size of the down payment depends on the loan type, collateral, and lender risk tolerance.
Lenders view borrower equity as a signal of commitment and financial stability. A higher down payment can improve loan terms and increase approval odds, particularly when other parts of the application are borderline.
Commercial loans work best when the borrowed funds produce a measurable return over time, such as increased revenue, reduced costs, or strategic growth. They’re ill-suited for speculative ventures or when cash flow is highly unpredictable.
Commercial loans are structured for established businesses with clear capital needs and a path to repayment. Borrowers typically fall into one of several categories, depending on their growth strategy, asset needs, and financial profile.
Commercial loans offer powerful funding options for growing businesses, but they come with trade-offs that are important to understand before borrowing.
Getting a commercial loan takes more time and paperwork than smaller business loans. Lenders want to know your business is financially strong, that you can repay the loan and that you have something to offer as collateral. Here’s a simple step-by-step guide to help you prepare:
Before approaching lenders, gather the following:
For SBA loans, be prepared to complete additional forms, including a personal financial statement and management resumes for owners with 20% or more equity.
Most commercial loans are secured. Lenders evaluate collateral based on type, condition, marketability, and loan-to-value (LTV) ratio.
Securing a commercial loan with favorable terms requires more than just filling out an application. Lenders evaluate multiple factors and certain strategies can improve your chances of approval while helping reduce the loan’s overall cost.
One of the primary factors in loan approval is your credit score. A score above 680 is often the baseline for securing competitive rates. If your credit score is lower, work on improving it before applying by paying down debts and ensuring timely payments.
A well-structured business plan demonstrates to lenders that you have a clear roadmap for success. Include detailed financial projections, a breakdown of how the loan will be used and any strategies for risk mitigation. A strong plan reassures lenders that the loan will be repaid on time.
Offering collateral reduces the lender’s risk and may lead to lower interest rates. Common collateral types include real estate, equipment or receivables. The more valuable your collateral, the more likely you are to receive favorable terms.
Lenders will closely examine your cash flow and ability to meet debt obligations. Ensure your business generates steady revenue and maintains a healthy debt service coverage ratio (DSCR). A ratio of 1.25 or higher is typically viewed favorably, signaling you can cover the loan repayments comfortably.
Providing a larger down payment reduces the lender’s exposure and may result in a lower interest rate. Aim for at least a 20% down payment for commercial real estate loans or higher for riskier ventures like startups.
It’s usually best to work with a lender you have a relationship with, if possible. Lenders who are familiar with your business are more likely to offer favorable terms. Consider opening a business account or applying for smaller loans in the past to build rapport.
Don’t settle for the first loan offer you receive. Different lenders may offer varying rates, terms and fees. Shop around and compare options to find the loan that best suits your needs. Consider working with a broker to help you navigate your options.
If possible, reduce your existing business debt before applying for a new loan. High levels of debt can signal to lenders that your business is over-leveraged and may struggle to repay additional obligations. Reducing debt improves your financial ratios and makes you a more attractive borrower.
Choosing the right loan for your business type and needs can help lower your costs. For instance, SBA loans offer lower interest rates and longer repayment terms, but they may require more documentation. On the other hand, traditional loans may be faster to process but come with higher rates. Select the option that fits your business model and financial situation best.
Significant operational changes, such as leadership turnover or business restructuring, can raise concerns for lenders. If possible, maintain stability in the months leading up to your loan application to show that your business is in a strong position to succeed.
"When a manufacturer of beverage equipment came to us needing $450K, their two-year track record and existing vendor relationships with established distributors got them approved at 8.2% versus the 12-15% rate newer businesses typically see… A landscaping company saved 40% on their total financing costs by agreeing to higher payments during their busy months (April–October) and minimal payments during winter.
Most borrowers don’t even know flexible payment structures exist, but they can make or break a deal’s affordability."
Commercial loans aren’t always the right fit — especially for newer businesses, smaller financing needs or situations that require speed and flexibility. These alternatives can offer faster access to capital or different structures that better suit your business’s cash flow and risk tolerance:
Commercial loans can support growth, stability, or acquisition, but they require clear cash flow, solid financials, and a willingness to commit assets. Businesses should weigh the structure and impact of each option before committing to long-term debt.
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