Financing options for corporate and commercial businesses

Businesses need cash to take advantage of opportunities to grow.

Your key raw material supplier is overstocked and offers you a one-time discount for a cash-on-delivery purchase. You receive a large order with a fast turnaround, but you must front manufacturing costs. Your top customer falls behind on payments and asks for a one-time extension. In these situations, having commercial financing options available can help your business respond quickly. Several types of financing may provide business owners with an influx of cash to keep their momentum going and their costs covered.

No matter the type, offering a potential lender an engaging (and complete) picture of your business is a key step. Once you choose which commercial financing option is right for your company, prepare a narrative that will let lenders know why you need this capital and why your business is a good candidate for a loan.

Lines of credit

A business line of credit can be an affordable and flexible way to ensure your business is prepared to act on opportunities and handle the unexpected. It operates much like a credit card: Instead of getting one lump sum, you’ll qualify for a specific amount you can choose to borrow and spend as needed.

A line of credit allows your business to:

• Finance ongoing working capital when receivables are slow or late.
  
• Take advantage of unexpected opportunities.
• Purchase inventory when offered special pricing.
• Balance fluctuations in business or seasonal reductions in sales.
• Pay bills early and receive discounts.
• Prepare for downturns where you may need to access additional funds.

A dependable line of credit can be both a tool to chase opportunities and a safety net—providing simple and affordable access to cash when you need it.

Term loans

A business term loan is much like a personal term loan: A business borrows a lump sum of money from a lender and pays it back with interest within a set amount of time. The interest rate on term loans can be fixed or variable. Payments are calculated based on the total loan amount, not just the amount used at any given time.

One drawback of a term loan is that there may be restrictions on how you can use it. For example, you may only be able to use the loan to purchase a real asset, like a building, rather than to pay for labor costs.

Credit cards

Business credit cards are a popular commercial financing option because they provide fast access to capital. They can be linked to your business checking and credit accounts for easy repayment and added overdraft protection. Like many personal credit cards, some business credit cards offer cash-back or travel rewards. Business credit cards can help you build business credit and track small expenses.

But commercial credit cards can be expensive because they accumulate interest monthly when you carry a balance. Another drawback is that lenders and auditors often put restrictions on what can be purchased with them—they must be used for a business-related expense.

Bridge loans

A bridge loan can fund a short-term urgent need. This type of financing fills the gap—or creates a bridge—during a time when your business needs immediate capital to cover needs. Because the loan is short-term, usually lasting six to 12 months, bridge loans should be used when a business is confident that the loan can quickly be repaid or refinanced. This type of loan is used most regularly in commercial real estate transactions. For example, it could fund the construction or renovation of a facility. When the facility is finished and generating income, the bridge loan can be refinanced into a new, multiyear term loan.

SBA loan

Another commercial financing option for small business owners is a loan from the U.S. Small Business Administration (SBA). Is your business a small business? That depends on the industry you’re in, but you might be surprised at the ranges. For example, a full-service restaurant averaging $10 million in annual revenue and a commercial bakery with 900 employees would both be deemed small. You can use this interactive calculator to size your business by SBA standards.

SBA loans are government-guaranteed, and funded by lenders who work with the SBA. They generally have low interest rates compared to other commercial financing options and longer-term repayment schedules. There are different types of loans for different uses, like SBA 7(a) loans, which are common multiuse loans for refinancing debt, buying real estate, short- and long-term working capital, or supplies. Microloans are smaller in size (usually $50,000 or less) and are for startup costs for new businesses. SBA 504 loans are for major purchases or improvements in facilities and machinery up to $5 million.

Secure funding with effective storytelling

Putting credit to work can create all sorts of opportunities for your business, so giving your application the best chance for success is worth significant time and effort.

Think like a banker when making your case for credit. It’s good to be familiar with the basics, like collateral, profitability, cash flow, and a strong balance sheet, but your business narrative may be just as important. Start with these guidelines when asking for the credit you need to expand your business.

Consult your advisors.

Speak with your financial advisors to find out how you can strengthen your loan application and increase your chances of approval. An accountant, banker, or counselor from your local Small Business Development Center may be able to help you with a strategy and detailed financing plan.

Create a compelling business story.

An engaging and thorough narrative will provide a lender with insight on how your company operates. Be sure to talk about your and your key employees’ backgrounds, education, business expertise, and industry knowledge. How has your team’s management style contributed to the company’s success? Emphasize your commitment to the business and its long-term goals.

Bring your story to life with a solid business plan.

Discuss where your business is going and how you plan to get there. How will additional financing increase your company’s profits and value? Outline how newly generated cash flow will cover loan repayments.

Prepare professional financial statements.

Prove your company can control operating costs and turn a profit. Work with your financial advisors to develop balance sheets, income statements, and cash flow reports to prove your business has a promising net worth and healthy liquidity. Be ready to provide statements for both personal and business finances.

Provide an accurate and complete application.

Some of the application requirements and documentation needed for commercial financing applications might surprise you, such as copies of loan applications you’ve completed in the past—whether you received funds or not—and resumes for key employees in your company.

Your Truist relationship manager can help you figure out what you’ll need for your loan application and connect you with a team of experts to make sure it’s done right. Truist even has a dedicated SBA team that specializes in assisting businesses as they complete, submit, and manage SBA applications.

Understand your available collateral.

Many loan agreements will require you to secure the loan with collateral, which is any asset that can be used as a source of repayment to protect the lender’s investment in the event of default. What can your company offer as collateral? Equipment? Vehicles? Land? Cash and investments can also serve as collateral.

Commit.

Prove that you and your partners are fully committed to your business and heavily invested in its future. Include your private financial records, relevant business experience, and personal equity investments in the company to help strengthen your loan application.

Develop a working relationship.

Developing a relationship with your banker might take time, so start building one well before you need to opt for commercial financing. Be sure to share any news about your business’s development, and ask your banker for advice as you head toward your goals.