Taking the Scary Out of Commercial & Small Business Lending
Proper-Tea Time Episode 4: Commercial & Small Business Lending
Here in Longmont, CO, we pride ourselves on our small business community. Of course, the last year or two has not been necessarily kind to small businesses. However, there is help out there. Whether you are in need during a rough economic turn, are looking to expand, need a little help preparing for the holiday rush, or any other myriad of things, commercial and small business lending might be the right move. If you’re feeling a little overwhelmed or nervous about the idea—never fear! I’ve taken the “scary” out and broken it all down for you.
What is commercial and small business lending?
We tend to have this idea that business owners operate on their own created wealth or that of private investors, but that is just not true. To get a business up and running, most utilize commercial lending. Commercial lending is a “borrowing relationship” between a business and a financial institution. Essentially, a business can borrow money for startup costs, everyday business expenses, Real Estate or construction, operation costs, expansion, etc. Some types of commercial lending are a business line of credit, business credit card, construction loan, hard money loan, Real Estate loan or a Small Business Association (SBA) loan.
These loans are generally more flexible than conventional loans, but their terms are shorter, between 1 and 5 years, unless it’s a commercial Real Estate loan. The rate a business owner qualifies for may also be a little higher than the rate that the same individual may qualify for on say their personal residence. Commercial lending is a great option for small businesses starting out because you get the money faster than with other loans, there’s no need to find investors and the interest is tax-deductible. However, established businesses can also take advantage of this type of lending when they need to expand, prepare for high volume seasons, or if they’ve hit hard times, like through this pandemic.
Of course, commercial lending isn’t the right loan for everyone. You need to be sure that you’ll be able to make your payments. However, if you are concerned about the short term, you can usually extend the loan at a penalty that is laid out in your contract.
There’s no need to be scared!
I recently sat down with Drew Ballingham, a commercial lender at High Country Bank of Longmont. He has 20 years of lending experience and insists that it is not as scary as you may think to take out a commercial loan for your business. People often wait until the last minute to walk into a financial institution and ask for help, but there is nothing to fear! Longmont is rife with wonderful small businesses, some that have been hit hard recently, some that have taken off because of e-commerce. Whatever your situation, there is help out there and commercial lending is an option you should consider.
Why it’s good to have a relationship with a lender
Perhaps some of the fear of inquiring about a small business or commercial loan is because the bigger banks are more stringent and rigid. In the case of these types of loans, having a relationship with a smaller lender or an originator at a local branch means that you get to talk to someone who wants to work with you. They get to know you and your business and will go out of their way to discuss all of your options, find a way to meet your particular needs and do what they can to help you qualify. Not to mention, it’s nice to have an actual voice and face in front of you, rather than a computer screen.
What do you need to qualify?
To be sure, you’ll need to qualify for the loan, and that might be where the fear comes in, but it needn’t. When you pick a lender, they can advise you on what they’ll need and let you know if there is something that you need to work on.
When in consideration for a loan, and depending on the type, you’ll need to provide several things to the lending institution. You can break them down into three main categories: cash flow, character and collateral.
The bank needs to ensure that you can repay the loan, so they are going to want to look at how long you’ve been in business or your business plan, annual revenue/projections, bank statements, tax returns, etc.
Both your business and personal financial history and credit score will be considered. Include any relevant legal documents or anything from your personal or business background that shows good character.
You can use hard collateral, like the Real Estate you currently own, vehicles, equipment, etc. or sometimes the lender will consider “contracts or assignment of future cash flow as collateral.”
How to find your lender
Drew finds that the main ways people are looking for commercial lenders and business funds these days are online or word of mouth. I always suggest asking for advice from friends, family and associates before taking your chances online. Mainly, you want to make sure the institution you choose has a good track record and that you get along with their staff and align with their values. Knowing that your lender wants to work with you and for your best interests makes a world of difference in your comfort throughout the process.
And if you’re here in Longmont, CO, make an appointment at High Country Bank! I know and trust them! And they are exactly the type of commercial lender that will help you achieve your business goals.
CHFA, SBA and government subsidies to help you
More terrific resources for small businesses looking for commercial loans are programs through CHFA (Colorado Housing Financial Authority) or the Small Business Administration (SBA). These programs often work through affiliated lenders and help take some of the pressure off of small businesses. Your lender can guide you to any of the subsidies that you qualify for and will aid your business.
The reali-tea is…
There’s no need to fear a commercial loan! You’re only standing in your own way if you do. We all need help to get our ideas on their feet, especially right now. Take advantage of the money that is out there to get your business up and running or keep it thriving!
If you happen to be looking for Longmont, CO Real Estate, I’m the Realtor for you! Contact me, Sarah Morrow, today, and let my tenacity move you! And if you are looking for a commercial or small business loan, be sure to contact High Country Bank.
Please subscribe to my YouTube channel to watch monthly episodes of Proper-Tea Time, my show on all things Real Estate in Longmont, CO and beyond. And for information on Longmont homes, check out my blogs Why Longmont? and Your Home’s Value.