The skinny on lending finance to business persons

Whether you're just starting up a business or you need more money to expand your business, chances are you'll eventually need to get a business loan.

Also called commercial loans, business loans differ from residential loans in that they usually have higher interest rates and a much shorter term. They are also more difficult to obtain, as banks tend to have a different set of criteria when it comes to lending finance to business persons.

As with all loans, your interest rate depends factors such as the industry of your company, how profitable it is, how long you've owned the company, and your experience with business or entrepreneurship will be some of the deciding factors of your interest rate as well.

In order to secure a lower interest business real estate loan, consider the following tips:

• Have a business plan. A business plan, if you don't have one already, will be key in securing any type of loan, whether short-term or start-up. A detailed business plan will be able to tell a lender what they can expect in terms of finance and feasibility within the next few years. If you are unsure of how to make a business plan or what to include in it, look online for examples or talk to other entrepreneurs and business persons who successfully secured business loans.
• Get a credit rating report. Although other factors will be taken into consideration, your credit rating will also be a determining factor in whether or not you can get a low interest loan. Your history in making payments on time will be of great impact. While this is not a necessary document for a lender, since they can get your credit report very quickly, it's good for you to know, especially if you're not sure what your credit score is or if you think it is damaged. In order to get a report, call one of the three credit reporting agencies, Equifax, Experian, or TransUnion (keep in mind that credit reports are only free once a year, so if you have gotten a report in the past 12 months, you may have to pay a nominal fee.) Once you get your report, it will let you know what you need to do to improve your credit score if necessary. If your score is low, you will need to bring it up before attempting to apply for a loan.
• Know your collateral. Your collateral consists of the things you're willing to allow to be repossessed should you be unable to repay your loan. This could be your house, your car, or company equipment.
• Go with a lender in your niche. It's best to go with a lender who specializes in commercial and business loans instead of going with a one-stop lender who has little expertise in all areas of loans.
• Know the terms. It's important to know exactly what you're getting into. If there are terms that you need clarified, such as tax escrows, closing schedule, lender's calculation method, and others, make sure you do this before signing or agreeing to anything. This is where a broker comes in handy.

Most businesses, especially in the beginning or as they become more successful, will need to apply for a business loan. By keeping the above points in mind, you increase your chances of securing lending.