Are you struggling to make ends meet for your business? Well, commercial lending is the solution to such financial crises faced by corporate entities. But, what exactly is commercial lending?
Be it for day-to-day activities or marketing and expansion, businesses can rely on commercial credit from banks and other lenders. The loaned amount can help sustain, promote, and grow the company.
In this article, you can read about what commercial lending is and how you can get commercial credit. Also, you can learn the best ways to use commercial credit in the company’s best interest.
What Is Commercial Lending?
First thing first, let’s learn what commercial lending is. Simply put, commercial lending is the lending arrangement where banks loan money to corporate entities at a pre-arranged interest rate.
Even though it involves a much more formalized procedure, when compared to personal loans, your business may benefit immensely from commercial credit.
Moreover, the application process for commercial lending is much easier compared to other methods of raising money in the debt or equity market.
Benefits
The most obvious advantage for recipients of commercial credit is access to capital. The additional cash you receive can be used to tackle payroll expenses, buy new equipment, etc.
Best of all, increasing business funds through commercial borrowing will not dilute your equity. What’s more? Small businesses can take unsecured commercial loans to grow their business without worrying about any collateral.
How Can You Get Commercial Credit?
The first step is to incorporate your business as a separate legal entity from yourself personally. As you are required to separate the business from your personal finances and credit, the business must be a limited liability company or a corporation.
Next, make sure you have an Employer Identification Number issued by the IRS and also a DUNS number, which is the credit profile number of your business.
When you have all of these ready, you can go to the bank and set up two accounts – a standard checking account and a savings account. Once you have all of these, you can start building your business credit profile.
How to Get Your Business Profile Going
Start with the phone company or a nearby office supply store and see if they are willing to give your business a small credit line. You may even request a vendor or supplier to do the same.
Finally, you can obtain a small loan from the bank using your savings account. By getting this loan and repaying it on time and in full, you are building business credit and increasing your reliability.
A few such loans and before you know it the business will have a solid credit rating, making it easy to get bigger commercial loans.
How to Use Commercial Credit?
Getting your hands on commercial credit will allow you to fund some business-related expenses. This fund is available only for commercial use and must be separated from any personal expenses.
So, what can you use the commercial credit line for? Businesses can use commercial credit to pay for working capital needs and capital expenditures.
Furthermore, the fund may be used to pay for inventory or any other unexpected business-related expenses.
Apart from paying for daily business operations, commercial credit can be used to help fund business growth opportunities. This might include marketing and expansion, hiring and training employees, or a new website.
Conclusion
Now that you know getting commercial lending is not as daunting as it seems, you can apply to be on the receiving end of commercial lending.
However, invest this line of credit wisely and settle the debt in a timely fashion to maintain a good credit score.
Disclaimer: There are risks involved when using credit products. Consult the bank’s terms and conditions page before agreeing to anything.
