How to Get a Commercial Loan

Step 1: Determine what the loan will be used for

This may seem simple, but it’s an important first step that will help you with decisions later on like which type of loan makes sense and whether you pursue one. Some reasons to get a loan include:

• Extra cash flow for a down season
• Repairing old or purchasing new equipment
• Growing an established business
• Getting a new business off the ground
• Buying, renovating, or building a new location

Once you know why you need a loan, it will guide you in the next step as you review the different options.

Step 2: Find the right type of commercial loan

After deciding on why you need a loan, the next step is to look through the different options available and decide which type of loan makes sense. Here is a list of different business loan options that we offer at Southern Bank:

Working Capital Loans

Working capital loans give you funds to cover operating costs for your business. This will allow you to overcome seasonal cash flow or accounts receivable gaps, take advantage of unique opportunities, or cover additional project expenses. They are normally short term, unsecured loans - meaning there’s nothing used as collateral on the loan. For this reason, they tend to have a shorter payoff and higher interest rates than other options. To read more about working capital loans, visit this page.

Commercial Real Estate Loans

If you’re looking to purchase commercial property, renovate your current place, refinance real estate debt, or plan for construction of a brand-new location, a commercial real estate loan may be what you need.

These have shorter loan terms than a traditional mortgage - up to 10 years, and amortizations up to 20 years. This basically means your monthly payment is based on a 20-year loan, with the remainder due in a balloon payment at 10 years. Commercial real estate loans also require a down payment of at least 20%. Keep in mind that term and interest rates will be different from what you’d expect to see with something like a traditional mortgage, because commercial financing rates are generally higher.²

SBA and USDA loans

At Southern Bank, we work with the Small Business Administration (SBA) and United States Department of Agriculture (USDA) to provide small business loans. These loans typically offer better terms like a lower monthly payment or lower rates. The process may take longer, 60 to 90 days,3 and may require a higher credit score. Here are some of the options we help with:

SBA 504 Loans - Used to purchase real estate and long-term equipment, SBA 504 loans offer terms up to 25 years, below market interest rates, and require as little as 10% down.

SBA 7(a) loans - Can be used for construction, renovation, or buying land or buildings. SBA 7(a) loans allow you to borrow up to $5,000,000 for 25 years for commercial real estate, or 10 years for other purposes with either a fixed or variable interest rate.

USDA Loans - Designed to stimulate growth in rural areas, USDA Rural Development Authority loans make private credit more available by guaranteeing loans for rural businesses.

You can find out more about our USDA and SBA loan programs here.

Equipment loans

You never know when the next big opportunity might come to start offering a new product or service. You also never know when the equipment you’re currently using might break down. In either situation, being able to purchase or repair equipment might be necessary, and you may or may not have the funds available or on hand to make it happen. Equipment loans offer quick approval and flexible payment schedules. They are secured by the equipment you purchase, meaning you could also get better loan terms, even up to 100% of the equipment cost.4 Equipment loans can be used to purchase a wide range of things, such as:

• Medical and dental equipment
• Commercial vehicles
• Computers, monitors, printers, or copiers
• Specialized machinery
• Construction equipment and tools
• Agriculture equipment
• Heavy industrial equipment

If you want to learn more about equipment loans or get started, visit our equipment loan page here.

Step 3: Get your documents together

In general, commercial loans are harder to get approved for. This is because there are fewer protections for lenders in the case of default, making them riskier for financial institutions. Lenders will rely instead on other factors, like the borrower's credit, time in business, and real property pledged as security, when deciding on approval and terms. You’ll need to provide documentation to show a lender this information in order to qualify for a commercial loan.

The specific documents needed will change depending on the lender, but in general, they will be looking at:

• Business financial documents (often for the past 3-5 years) - Balance sheets, income statements, tax returns, etc.
• Personal financial statements
• Business plans
• Credit history
• Detailed information on collateral
• Appraisals

If you are a new business, don’t worry if some of this information isn’t available yet. Most lenders will have specific requirements for startups, which may involve a closer look at the personal credit and finances of the business owners.

Step 4: Compare lenders

You have plenty of options for commercial lending from online lenders to commercial lenders in your area, as well as local banks. Some will give you quotes without having to apply, and while they aren’t set in stone, it could give you an idea of what you’ll qualify for. Getting multiple quotes will allow you to compare lenders and choose what is best for your business.

At Southern Bank we have lenders that are here for your business, who understand the market in your area and can work with you to get exactly what you need. To find a lender you can lean on, search for one in your area here - Find a Lender.

Step 5: Apply

Each lender will have a different application process. When applying for a commercial loan you’ll need information from the documents listed above. If you have questions, you should be able to reach out to the lender for assistance. Once you’ve filled out the loan application and supplied the necessary documents, the lender will obtain underwriting approval on the loan and then it will be reviewed. After final underwriting the lender will make an offer, which takes us to the last step.

Step 6: Close on your loan

Once you’ve received an official offer from a lender, you’ll sign a letter of intent. The entire loan will go through another review and upon approval, you’ll sign the final documents and receive the funds or a line of credit.

And now you’re ready to execute the plan that you started with to grow your business - and we’ll be here to keep helping you every step of the way.