Small  Business Commercial Loans

Have you thought about obtaining a commercial/business loan?  Going into business for yourself does require a certain amount of capital, and for some, that means taking out a business or “commercial loan” to fund your new enterprise. 

Commercial loans are given for the express purpose of operating your business and they are a viable source of startup revenue for many people.  However, there are cases when commercial loans are just not going to be worth the bother to go after:

1) You have no personal credit history or it’s bad.  Commercial loans are a bit risky anyway.  Banks have a tendency to shy away from taking risks on people with shaky credit.  When it comes to commercial loans, banks have more opportunities than they have cash.  Of course they are going to take the better risks.

You can threaten to pull your $2500 out of your checking account and go elsewhere if they don’t give you the loan.  But it won’t matter.  Banks simply aren’t going to chance risky loan paper.

2) If you cannot show how you will repay the loan, banks are not going to become involved.  You must be able to at least show on paper how the loan will be repaid and that means having a full set of financials and a business plan.  If your business exists, you must be able to show that it is already profitable.  Stating that you need the money to become profitable won’t do either.  Banks will take the position that if you are already losing money, making the current business bigger will only mean that you will lose more money. 

3) If you do not have some of your own money in the business, banks aren’t going to be convinced that you believe the business is going to be successful either.  Banks almost never give out 100% financing and therefore, that means that if you don’t come up with at least 20-25% of the cash you need, they aren’t going to consider giving you a commercial loan.  Banks want you to be at risk of loss too since it probably means that you are going to work harder at it and not give up as easily.

4) If you do not have experience running a business, you probably aren’t going to get a commercial loan.  Banks know that experience means that you would make fewer mistakes and mistakes in business cost money and add to risk of loss.  They believe they are better off giving commercial loans to existing businesses and experienced entrepreneurs. 

5) If you do not have collateral to secure a commercial loan, chances are that you are not going to get one.  Banks want to know that they will at least get part of their money back if you fail.  If you do not have collateral to secure a commercial loan with, you will probably need a cosigner who will put the collateral up.

6) If you have income tax issues, you will not get your loan and that is especially true with the Small Business Administration.  The IRS can come collecting anytime and they take your collateral and your profits in payment of taxes.  Banks won’t risk that.

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