How to Choose the Right Commercial Lending Partner

Posted by Seacoast Bank on Dec 11, 2015 10:37:00 AM

Your commercial lending partner handles your business's finances and helps you reach your corporate goals. Consequently, you don't want to trust your business to just any financial institution. If you're interested in commercial loans, consider these factors before you choose a lending partner.

Know What Type of Loan You Need

The best commercial lender for your business offers the loan type you need.

The Wall Street Journal identifies numerous types of commercial loans, including business lines of credit, commercial real estate loans, equipment loans, term loans, and SBA loans. If you need a specific type of loan for your business, it's important to find a bank that offers it.

This is particularly important for specialized expenses, such as leasing heavy machinery or acquiring a new location. The type of commercial loan may impact its interest rate, repayment terms, and other conditions.

Choose a Lender That Knows Your Business and Market
When shopping for commercial loans, consider the lender's familiarity with your industry and audience. This is where working with a local or community bank comes in handy. The loan officers understand the local economy and might have worked with you before, which makes it easier to come to an understanding about your needs.

Find Out What Criteria the Lender Uses
Some banks and commercial lending partners only work with established businesses, while others fund startups and entrepreneurs. Get your books together and prepare a summary of your business's assets, revenue, and other relevant data, then talk with loan officers about their requirements. Understanding a bank's lending criteria can help you decide if they are the best partner for your business.

Research the Lender
Check the bank's ratings with the Better Business Bureau, Consumer Reports, and other organizations that rate businesses. You can also research reviews and testimonials from other business owners who have taken out commercial loans with that lending institution.

You're looking for a commercial lending partner that has stable capital, excellent ratings, and a good reputation in the community. When you see issues with customer service and other aspects of the business's operations, you could experience similar headaches if you initiate a working relationship with the bank. You can also ask the lender if you can speak with prior customers or review their testimonials.

Learn About the Bank's Repayment Terms
Getting a commercial loan is only the first step. Afterward, you have to pay it back on schedule and by the bank's terms. If you don't know the finer details of the loan, you can't properly evaluate it.

For example, does the loan include a balloon payment? Is the interest rate variable or fixed? Does the bank charge a pre-payment penalty? Get the answers to all of these questions as you shop for commercial loans.

The bank also might require you to maintain minimum deposits or retain minimum assets. Communicate closely with your accounting department or CFO so you know exactly what terms your business can manage. For example, if you extend trade credit to your customers, it becomes more difficult to manage and predict cash flow.

Commercial loans are extremely diverse, especially between different financial institutions. Choosing the right commercial lending partner sets up your business for success and ensures that you don't encounter any surprises as you pay off your loan.

Call us or visit one of our branches to discuss our commercial banking services.

Topics: Small Business

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