Pennsylvania Commercial Loans

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There are some very significant differences between applying for a home mortgage loan and a commercial loan. In the case of a home mortgage loan, the borrower must have a specific property in mind, must be able to afford the monthly payments, must have a suitable credit score, and must have sufficient funds on hand to cover closing costs. He is not required to provide detailed information about why he wants to buy the house, nor is he asked what he will do with it once he owns it.

A commercial loan can be more complex. For a new business, one of the most important items a borrower must provide is a viable, detailed business plan with estimates of projected cash flows, number of employees needed, and other essential information. Generally, the borrower's personal financial statements are also required. The borrower's ability to repay the loan will be based on the borrower having sufficient collateral on hand.

Existing businesses will have to provide the lender with profit and loss and balance statements as well as three years of both financial and income tax statements. Existing businesses should also be able to offer an accurate cash-flow projection based on past performance. Again, personal financial information will usually be required.

Before Applying for a Pennsylvania Commercial Loan
When seeking a business loan, the borrower must have done her homework. This means determining up front whether the borrower has good credit, both personal and business related. That determined, the borrower should carefully consider how much money she needs, how much time she will need to repay the amount, as well as what how much interest she will be paying and what level of monthly payments she can afford. In general, available collateral must be at least equal to the loan amount requested.

It is important for the borrower to provide the lender with detailed information about what she needs the loan for and why she needs it. Pennsylvania commercial lenders will ask the borrower how long she needs the money. Lenders can make several different types of loans including equity capital, short term, and long term loans. Of interest to the lender will be the issue of loan-to-value ratios.

The Importance of Loan-to-Value Ratios (LTV)
Underwriters look very carefully at the loan-to-value ratio every time they make a loan. Loan-to-value is the ratio between the fair market value of property and the amount of the loan or loans due on that property. The lower the ratio of loans to property value, the better for loan purposes. Obviously, the lender will be happier to make a loan of $200,000 on a property valued at a fair market price of $400,000 than on one valued at $250,000, because the lender's risk is lower.

Types of Commercial Financing in Pennsylvania
Some of the basic types of commercial loans available to business persons in Pennsylvania include asset loans, short-term loans, real estate loans, equipment loans, credit lines, and factoring. Some of these loans are far more complex than others. For example, in the case of factoring, a lender literally purchases the borrower's receivables and collects money from the borrower's customers.

Equipment and property loans are fully secured loans of up to about 80 percent of value. These can be long-term loans with repayment up to 20 years. Asset-based loans are loans made as a percentage of the borrower's existing assets and are typically used as working capital rather than for major purchases. Some businesses have seasonal needs, and they may typically request a short-term loan to cover the additional inventory or staffing required during the busy period. Short-term loans are often repaid in full within three to six months.

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