For many first-time business owners, the prospect of working with a financing partner to obtain commercial financing feels intimidating. There’s a confusing array of lenders, types of financing, and financing terms to choose from, and the financing process itself can feel less than transparent.
In this article, we’re going to walk you through the basic steps of the commercial financing process to clear up confusion and make sure you know what to expect. Note that we’ll use the terms “lender” and “financing partner” interchangeably throughout this article. At Team Financial Group, we generally refer to ourselves as an independent commercial equipment financing partner. However, we know that many people tend to just use the term “lender” for simplicity, even when referring to companies like Team Financial Group that offer a wide range of financing options.
1. Choosing an Equipment Lender
If you’re looking at financing, you probably already have a good idea of what equipment your business needs. So, the first step in the financing process is choosing your lender. For commercial financing, your main choice will be between a bank and an independent financing partner like Team Financial Group.
There are many benefits to choosing an independent financing partner over a bank. The biggest benefit is speed: Team Financial Group can likely take care of your entire transaction within 24 hours, where a bank may take several weeks. Another big benefit is that the bank may require a down payment while Team Financial Group will probably be able to offer 100% financing.
Besides those two major benefits, an independent financing partner like Team Financial Group can provide other perks like increased flexibility and personalization, experience working with a wide range of businesses that don’t fit into the bank’s rigid “box” of preferred clients, and existing relationships with equipment vendors.
For more information about how to choose which type of financing partner is right for your business, read our full blog article on this subject.
RELATED ARTICLE: How to Choose the Right Commercial Lender for Your Business
2. The Application Process
Once you choose a lender, the next step is to apply. The application process may vary depending on your lender, but we’ll walk you through the fundamental steps.
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The Application
First, you’ll need to fill out an application. At Team Financial Group, we understand that commercial financing can seem like a confusing process, so we give you the option of filling out only a basic application consisting of your contact information and business name. This way, if you don’t know exactly what you’re looking for or don’t have all the information you need ready for a full application, you can signal your interest in applying and get personalized help from Team Financial Group with the rest of the application process.
Once you’ve filled out the basic application form, you’ll receive an email with the option to download the full application. If you’re ready to apply on your own, you can get a head start on your application while you wait to hear back from our financing specialists.
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Evaluating Your Credit History
No matter which commercial financing partner you choose, you’ll need to provide credit information. The information you’ll need to supply will depend on various factors, including how long your company has been in business and your personal credit score.
At Team Financial Group, our general rule of thumb is that for financing amounts between $5,000 and $75,000, your personal credit history can often give us enough information to make an approval decision. For financing amounts of $75,000 and up, we tend to require tax returns and other financial information.
Information that we sometimes require for larger financing transactions can include:
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- A federal tax ID
- Recent tax returns (past two years)
- Cash flow forecast
- Profit & loss (P&L) statements
- Recent business bank statements
- Business debt schedule
RELATED ARTICLE: What Do I Need to Prepare Before Applying for a Commercial Loan?
3. Approval and Underwriting
Next comes the approval process. In this stage, lenders sort through information about your business to evaluate your risk level and your ability to pay back the financing you receive.
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How Lenders Evaluate Your Application
A diligent lender will carefully assess your application to understand your business’ financial situation. Most lenders will focus on evaluating your:
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- Credit history
- Debt service coverage ratio (DSC) — the amount of cash flow you have available to pay your current debt obligations
- Industry conditions
Banks and other lenders will also look at how much capital you have personally put into the business and what assets you have available to put up as collateral. At Team Financial Group, we’re able to operate with more flexibility than a bank, which gives us the ability to structure and approve an application based on many different factors.
RELATED ARTICLE: How Do Commercial Financing Partners Evaluate Loan Applications?
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How Lenders Will Determine Your Options
Once your lender has gathered all the relevant information about your business, they’ll use this information to decide how much money they can loan your business and under what terms. In general, the better your personal and business financial history, the more flexibility you’ll receive when it comes to payment and term options.
At Team Financial Group, we have experience providing financing for companies in a wide range of industries and at all stages of growth, so we can draw from this experience to create a custom financing offer that works around your company’s cash flow and unique needs.
4. The Financial Agreement
Once your lender has evaluated your application and set the terms for your financing, you’ll have a chance to go over everything with the lender and decide whether to sign the final financing agreement. The agreement is a simple contract stating the details of your financing plan, including payment amount, the type of financing, and the term length and schedule.
Team Financial Group Helps You Purchase the Equipment You Need
Interested in obtaining financing to help start, expand, or update your business? Let’s talk! Call us at 616-735-2393 or fill out our online form to get in touch and learn more about your financing options.
Ready to apply? Visit our application page and get started now. All you need to do is provide a bit of basic information and we’ll step in to guide you through the rest of the process.
The content provided here is for informational purposes only. For personalized financial advice, please contact our commercial financing experts.