What are Commercial Lenders?
A commercial lender refers to a credit facility that issues loans to a business. 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 usually apply to these lenders in person, and it takes several weeks to complete the lending process. Some examples include Wells Fargo, PNC, and Bank of America.
Alternative lenders are non-bank financing companies, typically offering loans online. These lenders use fintech capabilities to speed up the lending process, often able to fund loans within a few business days. Examples include OnDeck, Bluevine, and Fundbox.
How do Commercial Loans work?
Commercial loans refer to any form of business lending, whether a small business loan or an enterprise-level loan to a large corporation. 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. 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 – $5 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, plus interest and fees, in fixed payments for the loan term.
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 only offer short-term loans, which must be repaid within 18 months. However, several alternative lenders provide medium- and long-term loans as well.
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 line of credit activates your funds as an available credit limit. 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.
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 excellent for covering unexpected costs or emergencies, ongoing projects, and helping 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 like UCS.
Lenders must apply to the SBA and comply with its standards to become eligible to offer loans. 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.
Equipment Financing
- Amount: Up to $5 million per piece of equipment.
- Rates: starting at 3.5%
- Term: 1 – 10 years.
- Speed: 3 – 10 business days.
Equipment loans are like term loans, except they’re specifically for purchasing business equipment. You can use the loan to buy most equipment, from commercial kitchen appliances to construction equipment to 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 – $1 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 so borrowers only repay what they can afford.
MCAs are among the most accessible but 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.
Invoice Factoring
- Funding amount: $10k – $10 million.
- Factor rates: starting at 1% p/mo.
- Term: Up to 24 months.
- Speed: 1-2 weeks.
Invoice factoring, also called invoice financing, allows you to turn unpaid invoices into immediate working capital. The process requires working with a third-party financial institution called 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, called 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.
Best Traditional Commercial Lenders for Small Business
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 but also provides some small business financing.
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.
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.
The bank offers an online application for equipment financing and 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 from the 2019 merger of SunTrust and BB&T Bank. It offers a hybrid model where business owners can apply online for some loans but must apply in person for others. It has limited SBA loan offerings, as you must apply at an approved branch location.
Best Alternative Commercial Lenders for Small Business
OnDeck
- Loans offered: Business term loans and Lines of credit.
- Amounts: Up to $250 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.
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 time depend on the lender where the marketplace matches you, it aims to take the guesswork out of the application process and speed up approval and funding. 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 for: Business owners with an urgent funding need 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.
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 added short-term loans and equipment financing, rebranding as CAN Capital. It remains one of the top alternative financing options with excellent online reviews.
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.
Flex Play allows you to draw from your line of credit to cover business costs such as vendor payments, payroll, and invoices. You can repay Fundbox within three days to avoid fees or interest payments. After three days, the transfer counts 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%, gives borrowers more time to pay, and provides 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 specializing in fast funding for most 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. The company’s loan experts can help you determine the best options for your funding goals and qualifications.
How does my small business qualify for a Commercial Lender?
Qualifications vary significantly depending on the loan type and lender. 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+.
Most commercial lenders also consider your business credit score. Review our guide on business credit to understand how to establish and build business credit.
Alternative lenders provide much more lenient qualifications, especially depending on the 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 some time to make sure 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 A/R and A/P aging reports. A merchant cash advance requires bank statements showing 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 Representative
Once you apply, a representative will contact you to explain the repayment terms, interest rates, and terms you qualify for. This will ensure that there are no surprises or hidden fees during repayment.
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.
- 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 include all forms of financing for 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 those cases, loans for small and mid-sized businesses (SMBs) usually fall under small business loans, while enterprise-level financing is considered commercial lending.
Why don’t banks give small businesses Commercial Loans?
Banks hesitate to loan small businesses because they perceive them as high risk with low reward. Due to the small business failure rate, many consider small businesses less reliable than larger corporations. In addition, banks claim it takes just as much time, effort, and resources to underwrite and service small businesses loans with a much lower profit margin.
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 won’t approve a loan. Several alternative lenders offer bad credit business loan solutions.
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 include any financial institution that provides funding for businesses of any size.
However, small business owners typically struggle to get financing from traditional lenders, like commercial banks. Fortunately, alternative lenders fill that need by providing fast funding with much lower qualification requirements.
The list above consists of some of the top small business loan options from traditional and alternative lenders. Another option is to work with an alternative lending marketplace, like UCS, that can provide personalized service to help find and connect you with the lenders that best match your funding needs and qualifications.
Contact us if you have more questions on commercial lenders or want to apply for a small business loan. Our loan executives can help answer any questions you may have.
