What are Commercial Lenders?
A commercial lender refers to an institution that provides a credit facility, issuing loans to businesses. It differs from consumer lending, which refers to loans to individuals.
There are two broad types of commercial lenders: traditional and alternative. Traditional lenders are commercial banks and credit unions. Business owners typically apply to these lenders in person, and the lending process can take several weeks to complete. Some examples include Wells Fargo, PNC, and Bank of America.
Alternative business lenders are non-bank financing companies that typically offer loans online. These lenders utilize fintech capabilities to expedite the lending process, often enabling them to fund loans within a few business days. Examples include OnDeck, Bluevine, and Fundbox.
To qualify for most commercial loans, the business must operate as a legally registered entity within the lender’s jurisdiction.
How do Commercial Loans work?
Commercial loans encompass any form of business lending, ranging from small business loans to enterprise-level loans for large corporations. Most enterprise-level loans come from traditional commercial banks and are negotiated between the bank and the company.
Small business loans tend to be more accessible with defined features and competitive rates. Small business owners can use commercial loan funds to purchase inventory, acquire equipment, support operations during down seasons, and more.
Let’s look at some of the available commercial loans for small businesses.
Note: The following information is based on loans available through UCS’s lender network. Loan amounts, rates, terms, and funding times may differ at traditional or alternative lending marketplaces.
Business Term Loans
- Amount: $10k – $10 million.
- Rates: Start at 8%.
- Term: 3 months – 10 years.
- Speed: 1-3 business days.
Term loans are the most common form of business financing, and both traditional and alternative lenders offer them. With a term loan, the small business receives a large sum upfront, which it then repays, along with interest and fees, in fixed payments over the loan term. Some lenders offer longer repayment terms, which can help reduce monthly payments and improve cash flow for borrowers.
Businesses can use term loan proceeds for various business purposes, including working capital, purchasing commercial real estate or equipment, expanding locations, acquiring another company, or refinancing business debt. Some lenders may restrict the use, but it varies.
Many online lenders offer short-term loans that must be repaid within 18 months. However, several alternative lenders also offer medium- and long-term loans.
Business term loans can be used as commercial real estate loans to acquire a variety of property types. Commercial real estate loans are available with repayment terms ranging from 10 to 25 years. Commercial real estate loans commonly have fixed or variable interest rates.
Business Line of Credit
- Amount: $1k – $1 million.
- Rates: starting at 1% p/mo.
- Term: up to 36 months.
- Speed: 1 – 3 business days.
Instead of a one-time lump sum disbursement, a business line of credit allows you to access your funds as an available credit limit. Business lines of credit allow borrowers to access funds as needed and have revolving terms. You can draw from the credit limit as needed and only pay interest on the money you draw.
Most lines of credit are revolving, meaning the credit limit replenishes as you pay it back, like a credit card. The flexible funding arrangement provides money on demand when you need it.
Some lenders offer an unsecured line of credit, which does not require collateral, while others may require a security deposit as part of a secured business line of credit. The security deposit typically matches your credit line limit, with a minimum initial deposit of $1,000.
The drawback to a line of credit is that it’s best to activate it before you need the funds. This type of funding is ideal for covering unexpected costs or emergencies, as well as for ongoing projects and helping to smooth out cash flow gaps.
SBA Loans
- Amount: $50k – $5.5 million.
- Rates: starting at Prime + 2.75%.
- Term: 10 – 25 years.
- Speed: 8 – 12 weeks.
The U.S. Small Business Administration (SBA) oversees the SBA loan program. Businesses cannot apply directly to the SBA. Instead, small business owners must apply to one of three types of financial institutions: commercial banks, credit unions, or alternative business financing facilitators, such as UCS. SBA financing includes popular programs like the 7(a) and 504 loans, which are available through select lenders. Veterans can receive discounts on loan administration or origination fees for specific types of loans.
The U.S. Small Business Administration (SBA) helps small businesses secure funding by establishing guidelines for loans and mitigating lender risk. Lenders must apply to the SBA and comply with its standards to become eligible to offer loans. Working with a preferred SBA lender or SBA preferred lender can streamline the application and approval process due to their specialized expertise and authority in SBA loan programs. The government agency sets rules SBA-approved lenders must follow, limits what interest and fees they charge, and partially guarantees up to 85% of the loans.
With backing from the federal government, lenders have the security to offer higher borrowing amounts at lower rates and extended repayment terms. SBA loans are fully amortized with fixed monthly payments. Many consider SBA loans to be the gold standard of business financing.
SBA loans can be used for most business purposes, including the purchase of long-term fixed assets and operating capital. The requested loan must be unavailable on reasonable terms from non-government sources for businesses to qualify for SBA loans. The business must be physically located and operate in the United States or its territories to qualify for SBA loans.
SBA loans typically offer lower down payments and longer financing terms compared to traditional loans. The SBA 504 loan is suitable for commercial real estate loans of $350,000 and above. SBA Express loans offer a faster funding option of up to $500,000.
Equipment Financing
- Amount: Up to $10 million per piece of equipment.
- Rates: starting at Prime + 3.5%.
- Term: 1 – 10 years.
- Speed: 3 – 10 business days.
Equipment loans are similar to term loans, but they’re specifically designed for purchasing business equipment. You can use the loan to purchase most equipment, including commercial kitchen appliances, construction equipment, computers, and office furniture.
The equipment you’re financing becomes the collateral for the loan. If you default, the lender claims the equipment to cover its loss. This is known as a self-collateralizing loan. You might be familiar with other self-collateralized loans, such as mortgages or car loans.
Merchant Cash Advance
- Amount: $5k – $5 million.
- Rates: starting at 1-6% p/mo.
- Term: 3 – 24 months.
- Speed: 1 – 2 business days.
With a merchant cash advance (MCA), borrowers receive a large sum of cash upfront, which is then repaid from a percentage of daily debit and credit card sales. Some lenders use a fixed percentage, while others use flexible terms, allowing borrowers to repay only what they can afford.
MCAs are among the most accessible, yet costly, business funding options. Since repayment comes from your revenue, MCA funders care more about your sales than traditional lending criteria like credit scores and time in business.
Accounts Receivable Factoring
- Funding amount: $10k – $25 million.
- Factor rates: starting at 1% p/mo.
- Term: Up to 24 months.
- Speed: 1-2 weeks.
Accounts receivable factoring, also known as invoice financing, enables you to convert unpaid invoices into immediate working capital. The process involves working with a third-party financial institution known as a factoring company.
When you factor your invoices, you essentially sell ownership to the factoring company, which issues an advance based on the invoice value, referred to as an advance rate. Your customers pay their invoices directly to the factoring company, which then sends the remainder to you minus its fees.
Who are the Best Commercial Lenders?
The best commercial lender for your business depends on your needs and business qualifications. Small businesses must find lenders that offer small business loans.
The best commercial lenders offer customized solutions tailored to address the unique needs of each business. Compare lenders to find the right loan for your business needs.
Best Traditional Commercial Lenders for Small Business
Banks are the most common source of financing for small businesses. Bank loans typically have longer repayment terms compared to other types of business loans. Business loans from banks tend to have high maximum loan amounts. Most modern financial institutions offer mobile banking options.
Most banks require a personal credit score in the 700s for business loans. Banks typically need at least two years of business operation to qualify for a commercial loan. Smaller banks and credit unions may offer higher approval rates than large banks. Some banks may offer interest rate discounts to existing customers. Ensure any bank you work with is FDIC-insured.
Wells Fargo Bank
- Loans offered: Lines of credit, Commercial real estate (CRE) loans, SBA loans, Healthcare practice loans, and Commercial equipment financing.
- Amounts: Up to $500k for lines of credit, $1 million for CRE, and $5 million for other loans.
- Best for: Established businesses with excellent credit and high annual revenue.
Wells Fargo is one of the largest banks in the nation. It offers enterprise-level funding, as well as some small business financing. Wells Fargo is a nationwide bank with executive offices in California.
Existing customers can apply for a line of credit. If your business doesn’t have an account with the bank, you must visit a branch location to discuss your financing options.
Wells Fargo may charge origination fees for certain loan products, which can impact the total cost of borrowing.
CIT Group
- Loans offered: Equipment financing, Working capital, and SBA loans.
- Amounts: Up to $500k for equipment financing, $250k for working capital, and $5 million for other loans.
- Best for: Well-qualified small business owners who also bank with CIT.
CIT Group is a division of First Citizens Bank, one of the largest commercial banks in the country. CIT’s history dates back to 1908. CIT Group’s headquarters are in New York.
The bank offers an online application for equipment financing, as well as some small business finance options. You must visit a branch location to apply for other business loans.
Truist Bank
- Loans offered: Term loans, Lines of credit, Commercial auto loans, Equipment financing, Real estate loans, and SBA loans (branch application only).
- Amounts: Up to $5 million for SBA loans; $250 for all other loan types.
- Best for: Business owners seeking a traditional banking experience who don’t need urgent funding.
Truist Bank was formed through the 2019 merger of SunTrust and BB&T. It offers a hybrid model where business owners can apply online for some loans but must apply in person for others. Truist Bank has its headquarters in North Carolina.
Truist Bank offers online applications for various financing options, including those up to $250,000. It has limited SBA loan offerings, as applications must be submitted at an approved branch location.
Best Alternative Commercial Lenders for Small Business
Online lenders may have higher approval rates than traditional banks.
OnDeck
- Loans offered: Business term loans and Lines of credit.
- Amounts: Up to $250k for term loans and $100k for lines of credit.
- Best for: Small business owners with a minimum credit score of 625, at least one year of business history, and at least $100k in annual revenue.
OnDeck is one of the most reputable online lenders for business loans. It has lower qualifications and faster funding times than commercial banks. The alternative lender has outstanding reviews from customers. OnDeck is headquartered in New York.
SmartBiz
- Loans offered: SBA 7(a) loans, Term loans, and Custom financing.
- Amounts: Up to $5 million for SBA loans, $50k for custom financing.
- Best for: Streamlined SBA loan applications.
SmartBiz is an online marketplace, not a direct lender. It specializes in streamlining the SBA loan application process.
While approval and funding times depend on the lender with whom the marketplace matches you, it aims to eliminate the guesswork from the application process and expedite the approval and funding process. Instead of applying to many different SBA lenders, you complete one application, and the marketplace finds the lenders in its network where you’re most likely to qualify.
BlueVine
- Loans offered: Business lines of credit.
- Amounts: Up to $250k.
- Best suited for: Business owners with an urgent funding need who are seeking a line of credit.
BlueVine is an alternative lender offering lightning-fast funding times for its line of credit product. It also provides an online business checking account. The company launched in 2013 and is one of the highest-rated online lenders on our list. Bluevine is based in New Jersey.
CAN Capital
- Loans offered: Merchant cash advances, Short-term loans, and Equipment financing.
- Amounts: Up to $250k for all products.
- Best for: Small business owners without established credit seeking immediate funding.
CAN Capital was one of the pioneers of online merchant cash advances, launching as AdvanceMe in 1998. It has since expanded to offer short-term loans and equipment financing, rebranding as CAN Capital. It remains one of the top alternative financing options with excellent online reviews. CAN Capital is based in Georgia.
Fundbox
- Loans offered: Business line of credit with unique features.
- Amounts: Up to $150k.
- Best for: Younger businesses and credit-challenged business owners seeking fast funding.
Fundbox is an online lending platform for new and small businesses. It offers a line of credit of up to $150,000 but comes with some unique options. Fundbox is based in California.
Flex Play enables you to draw on your line of credit to cover business expenses, including vendor payments, payroll, and invoices. You can repay Fundbox within three days to avoid fees or interest payments. After three days, the transfer will be counted as a standard line of credit draw. The three-day grace period gives businesses more flexibility in making short-term payments to cover expenses.
It also offers Fundbox Plus, a monthly subscription service for $99. The subscription decreases interest rates by 20%, provides borrowers with more time to pay, and offers exclusive benefits.
Rapid Finance
- Loans offered: Term loans, Merchant cash advances, Lines of credit, Bridge loans, SBA loans, Invoice factoring, Asset-based lending (ABL), and Commercial real estate loans.
- Amounts: Up to $1 million for term loans; $500k for MCAs, $250 for lines of credit; $1 million for bridge loans, $5.5 million for SBA loans; $10 million for invoice factoring ABL, and $2 million for CRE loans.
- Best for: Businesses seeking urgent funding and multiple loan options.
Rapid Finance is an online small business loan provider that specializes in providing fast funding for a wide range of products. Its diverse suite of business loans makes it an attractive option for companies that either need multiple loans or are uncertain about which loan type is best suited for their needs. The company’s loan experts can help you determine the best options for your funding goals and qualifications. Rapid Finance had its headquarters in Maryland.
How does my small business qualify for a Commercial Lender?
Qualifications vary significantly depending on the type of loan and the lender. Understanding the requirements can help you find the best loan option for your business needs.
Most commercial banks and credit unions have high eligibility requirements. You’ll typically need to meet the following minimums:
- Personal credit score: 700+
- Time in business: 2 – 3 years
- Annual revenue: $250k+
Factors such as business age, credit scores, and annualized revenue play a significant role in loan approval decisions. Most commercial lenders also consider your business credit score. Review our guide on business credit to understand how to establish and build business credit.
Banks often require a minimum credit score of at least 700 for commercial real estate loans. Borrowers may be required to provide collateral to secure commercial real estate loans, depending on the lender’s specific requirements.
Alternative lenders offer more lenient qualification requirements, depending on the specific product. For example, most approved MCA customers we work with meet the following minimums:
- Personal credit score: 550+
- Time in business: 4+ months
- Annual revenue: $120k+
How to apply for a Commercial Loan:
Follow these steps to apply for a small business loan.
Step 1: Consider Your Needs
Before you begin the application process, take a moment to ensure this is the right product for your business needs. Will you be able to use the capital for your desired purpose? Is the repayment structure conducive to your cash flow? Do you know exactly how much funding to request?
Answering these questions ahead of time will make the rest of this process much smoother.
Step 2: Gather Your Documents
Documentation requirements vary depending on the loan you’re requesting. For example, invoice financing will require your accounts receivable (A/R) and accounts payable (A/P) aging reports. A merchant cash advance typically requires bank statements that show card payments.
Regardless of the loan, expect to provide these basic documents during the application:
- Driver’s license
- Voided business check
- Bank statements from the past three months
- Financial statements
Step 3: Fill Out the Application
You can begin the application process by calling us or filling out our one-page online application. Either way, you’ll be asked to supply the information from the previous section along with your desired loan amount.
Step 4: Speak to a Representative
Once you apply, a representative will contact you to explain the repayment terms, interest rates, and terms for which you qualify. This will ensure that there are no surprises or hidden fees during the repayment period.
Step 5: Receive Approval
If approved, funds should appear in your bank account in 1-10 business days, depending on your loan type.
Frequently Asked Questions
Here are the most common questions about commercial lenders.
What are the benefits and drawbacks of Commercial Loans?
Here are the pros and cons of an alternative commercial loan.
Pros:
- Quick and easy loan applications with minimal documentation.
- Fast turnaround on loan approvals and funding times.
- Less stringent approval requirements for borrowers.
- Diversity of loan products.
Cons:
- Tends to have a higher interest than bank loans.
- Might include an origination fee.
- Some lenders may charge loan administration fees, which can increase the overall cost of borrowing.
- Often offers smaller loan amounts.
- Most have short repayment terms.
- Some loans, like MCAs, take directly from your daily revenue.
Is a Commercial Loan different from a Small Business Loan?
Commercial loans encompass all forms of financing available to businesses. In other words, all small business loans are commercial loans, but not all commercial loans are for small businesses.
Some lending institutions (like commercial banks) that offer small, mid, and large business loans will use the terms “small business loans” and “commercial loans” to distinguish between the two. In such cases, loans for small and mid-sized businesses (SMBs) typically fall under the category of small business loans, whereas enterprise-level financing is considered commercial lending.
Why don’t banks give small businesses Commercial Loans?
Banks hesitate to lend to small businesses because they perceive them as high-risk with low returns. Due to the high failure rate of small businesses, many consider them less reliable than larger corporations. In addition, banks claim that it takes just as much time, effort, and resources to underwrite and service small business loans, which have significantly lower profit margins.
Banks remain the most common source of financing for small businesses compared to online lenders and credit unions. Business loans from banks typically have lower interest rates than those from non-bank lenders.
Most banks require borrowers to have a business checking account at their institution to qualify for a loan. Business loans from banks often have high maximum loan amounts to fund significant projects. Banks usually conduct a thorough review of the borrower’s credit history and business performance.
Online business loans offer faster funding and higher approval rates compared to bank loans. Some banks, such as U.S. Bank and Wells Fargo, provide loan options for companies with less than two years of business experience. Citibank offers fewer business loan products compared to some other banks.
Can I get a Commercial Loan with bad credit?
Getting a commercial loan from a bank or credit union with bad credit is unlikely. However, one of the main advantages of alternative lending is the ability to find financing solutions when banks or credit unions are unwilling to approve a loan. Several alternative lenders offer bad credit business loan solutions for businesses that cannot obtain funding through traditional means.
Best Commercial Lenders – Final Thoughts
People sometimes confuse commercial lending and small business loans, but financing options for small businesses are a subset within the larger commercial loan umbrella. Commercial lenders encompass any financial institution that provides funding to businesses of all sizes and types.
However, small business owners often struggle to secure financing from traditional lenders, such as commercial banks. Fortunately, alternative lenders fill that need by providing fast funding with much lower qualification requirements.
The list above comprises some of the top small business loan options from both traditional and alternative lenders. Another option is to work with an alternative lending marketplace, such as UCS, which can provide personalized service to help you find and connect with lenders that best match your funding needs and qualifications.
Contact us if you have further questions about commercial lenders or would like to apply for a small business loan. Our loan executives bring industry-leading expertise to help answer any questions you may have.
