How to apply for a commercial loan: a step-by-step guide

4 mins
Updated
March 4, 2025

Securing a commercial loan can be a critical step for business growth, whether you’re looking to expand operations, invest in new equipment, or improve cash flow. This guide provides a practical, step-by-step walkthrough of the commercial loan application process, including insights into the role of collateral and examples of acceptable assets.

Step 1: Assess your business needs

Before applying for a loan, determine the purpose of the funds and the exact amount you need. Whether it’s for purchasing real estate, acquiring equipment, or managing working capital, having a clear plan demonstrates preparedness and boosts your credibility with lenders.

Key questions to answer:

  • What is the loan amount you require?
  • How will the funds be used?
  • Can your business afford the loan repayment terms?

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Step 2: Understand your eligibility

Different lenders have varying criteria for commercial loans. Typically, they evaluate factors such as:

  • Creditworthiness: Both personal and business credit scores.
  • Business financials: Income statements, balance sheets, and cash flow.
  • Business age: Many lenders require businesses to be operational for at least 1-2 years.

Check your credit reports and address any discrepancies to enhance your chances of approval.

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Step 3: Research loan options

Explore different types of loans to find one that suits your needs. Common options include:

  • Term loans: Lump sum financing with fixed repayment terms.
  • Lines of credit: Flexible borrowing for short-term needs.
  • SBA loans: Government-backed loans with competitive terms.
  • Equipment financing: Loans specifically for purchasing machinery or equipment.

Compare interest rates, repayment terms, and fees to make an informed decision.

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Step 4: Gather required documentation

Lenders require comprehensive documentation to assess your application. Typical documents include:

  • Business plan: A detailed plan outlining your business goals and financial projections.
  • Financial statements: Recent income statements, balance sheets, and cash flow statements.
  • Tax returns: Both personal and business tax returns for the past 2-3 years.
  • Legal documents: Business licenses, articles of incorporation, and leases.

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Step 5: Prepare collateral (if required)

Many commercial loans are secured, meaning you must provide collateral—an asset the lender can seize if you default. Acceptable forms of collateral include:

  • Real estate: Commercial properties or land.
  • Equipment: Machinery, vehicles, or specialized tools.
  • Inventory: Goods that can be sold or liquidated.
  • Accounts receivable: Outstanding invoices.

Ensure your collateral’s value aligns with the loan amount, and be ready to provide documentation proving ownership and value.

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Step 6: Choose a lender

Select a lender that offers favorable terms and has experience working with businesses in your industry. Options include:

  • Traditional banks
  • Credit unions
  • Online lenders
  • SBA-approved lenders

Establishing a relationship with the lender can increase your chances of approval and potentially secure better terms.

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Step 7: Submit your application

Complete the loan application accurately and attach all required documents. Include:

  • Personal and business information
  • Detailed loan request
  • Supporting documents, including financial statements and collateral details

Be prepared to answer questions or provide additional information during the lender’s review process.

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Step 8: Review the loan terms

If approved, carefully review the loan terms, including:

  • Interest rate
  • Repayment schedule
  • Fees and penalties

Negotiate terms if necessary to ensure the loan aligns with your financial capacity and business goals.

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Step 9: Finalise the agreement

Once you’re satisfied with the terms, sign the loan agreement. Keep a copy of all documents for your records and adhere to the repayment schedule to maintain a positive relationship with your lender.

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Applying for a commercial loan can seem daunting, but with careful planning and preparation, you can navigate the process with confidence. By understanding the role of collateral and presenting a strong case for your business, you’ll be well-positioned to secure the financing needed to achieve your business goals.

Disclaimer
Prepared by Beck McLean Finance Pty Ltd ABN 80 632 809 833. This information does not take your personal objectives, circumstances or needs into account. Always read the disclosure documents for products and services before deciding on a product or service, and consider seeking independent legal, financial, taxation or other advice for your unique circumstances.
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