At Traditions Bank, we offer a variety of business loans and lines of credit for commercial real estate and equipment financing. As your business grows, it’s essential to understand your loan options to make the best decision for your operation’s future. Let’s look at your loan options and what you might expect through the application process and beyond.
Conventional Real Estate and Equipment Financing
Our Business Term Loans have fixed and variable interest rates with terms and payments that fit your budget. Your repayment schedule is based on the asset’s useful life, which allows your company’s cash flow to support additional expansion needs.
The biggest difference between real estate and equipment financing is the amount of money down required. Commercial real estate loans typically require 20-25% down for owner-occupied properties and 25-30% down for investment properties. Commercial equipment lending often requires a 10% down payment.
The Application Process: What to Expect
While the application process may seem intimidating, we at Traditions Bank do what we can to streamline the process. We can set up an in-person meeting and discuss your options. Should both parties decide to move forward, we’ll ask for documentation including:
- Your last three years of personal and business tax returns
- Permission to run a credit check
- A business model or plan with information like:
- Customer demographics
- Market outlook
- Current cash flow
Depending on your circumstances, we may also request collateral information. Please note that the loan application process is unique for everyone, so it’s best to contact us if you have questions that pertain to your specific situation.
Once we’ve received all your materials, we’ll submit the completed packet for underwriting. We pride ourselves on efficiency, so we will likely have an answer for you within three to five days.
Understanding Commercial Loan Challenges
Applicants should be aware of the unique challenges associated with commercial lending. Some of the most common include:
- Business Age. Startups and young businesses often seek commercial loans because they need the capital to grow. However, they may not have the proof of concept required for a conventional loan.
- Growth Potential. Outlining growth and business strategies is crucial when applying for a commercial real estate or equipment loan. The long-term viability of your business and its current state play a role in determining your eligibility.
- There are instances where a young business with unknown growth potential may be eligible for a conventional loan with the right collateral. However, startups, for example, may not have the collateral needed.
Additional options through the Small Business Administration (SBA) may be viable if you are ineligible for a conventional commercial loan. Your financial advisor can provide information on what might work best for your unique situation.
SBA Loan Programs
We understand that conventional loans do not work for every business. Fortunately, the SBA offers two loan programs that could meet your needs: 7(a) loans and 504 loans.
SBA 7(a) Loans
The 7(a) Loan Program is the most common loan program for small businesses looking to purchase real estate or equipment like furniture, fixtures, and supplies. Unlike conventional commercial loans, no down payment is required; however, companies seeking financial assistance must have clear, planned growth.
If we believe you are a good fit for a 7(a) loan, we will underwrite the loan and help you apply through the SBA. The SBA guarantees up to 75% of the loan balance. Most 7(a) loans are repaid with monthly principal and interest payments, with interest rates depending on factors like the type of loan, your credit score, and projected business growth.
SBA 504 Loans
The 504 Loan Program provides long-term, fixed-rate financing for major fixed assets like real estate that promote business growth and job creation. These loans come directly from the SBA and are offered in conjunction with a bank loan.
Say, for example, you are planning a $1 million project for a building and equipment. With SBA support, the bank can offer a loan of up to 50% of your total project cost. The SBA provides in the realm of 40-45%. As a result, you may be able to finance 90-95% of the project costs without putting any money down.
With 504 loans, borrowers have two loans: one with the bank and one with the SBA. Bank interest rates are typically fixed for five to seven years. SBA interest rates may be fixed for up to 20 years.
Partner with Traditions Bank
As a local community financial institution, Traditions Bank prides itself on getting to know our customers well, understanding their needs, and delivering the right products for those needs.
If you are in the market for a commercial real estate or equipment loan, we are here to review your options and help you find ways to grow your business. Schedule a call with our Commercial Banking team today at 717-747-2617.