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A Step-by-Step Guide For Commercial Loan Applications

Estimated Read Time: 5 Minutes

Pooja Jaiswal , 4 July, 2024

Securing a commercial loan is pivotal for businesses aiming to scale and thrive. Understanding the intricacies of the loan application process can significantly enhance your chances of success.

The process of filling out the loan application can sometimes be daunting and complex. But don’t worry, we’ve got your back. Here is a comprehensive guide that will walk you through the complete process step by step. Let’s dive in.

Importance of Commercial Loan Applications

Businesses understand the critical importance of commercial loans as they align with the business’s future. To navigate this crucial process, companies should familiarise themselves with the intricacies of loan applications. This proactive approach will not only boost their chances of obtaining the loan but also enhance their creditworthiness and relationship with the lenders.

Essential Documents Required for Commercial Loans

While applying for commercial loans, certain documentation is required for lenders to evaluate the eligibility of the borrower.

Documents you may require are:

It is important to note that documentation may differ from lender to lender.

Key Financial Criteria

When approving loans, lenders follow critical financial criteria to evaluate the borrowers. Below are a few key factors lenders analyse that you can use to strengthen your loan applications.

Credit Score

Lenders analyse the creditworthiness of the borrowers to check if the borrower is capable of repaying the loan. The credit score of the borrower provides lenders with a comprehensive view of their financial history. Borrowers must be prepared with all the required documents that demonstrate the business’s economic stability and repayment capacity.

Here are some tips to improve your credit score:

Financial Statements

The lenders may also ask for your most recent financial statements to assess your current financial stability. It is crucial to keep your financial statements from the last 2-3 years, such as cash flow statements, balance sheets, income statements, and Profit and loss statements. These documents assess lenders to decide whether to lend or not. A positive financial history can improve the chances of loan approval and more favourable terms.

Debt-to-Income Ratio

DTI is a percentage of your monthly gross income, representing how much debt you have against the income. Lenders use it to determine your borrowing risk. Although a DTI of 43% is typically the highest ratio, a borrower can have and still get qualified for a loan, but lenders generally seek ratios of above 36%.

The formula for DTI:

Source: Net Debt Formula

Here’s how it works:

  • Sum up your monthly debt payments (including credit cards, car loans, and mortgages).
  • Divide this total by your gross (pre-tax) monthly income.
  • Multiply the result by 100 to get the DTI ratio as a percentage.

Collateral and Personal Guarantee

Collateral refers to the asset or property kept as security for the loan. Lenders typically prefer property as their most preferred collateral, but business equipment, machinery, invoices or other assets can also be used as collateral. Lenders may also ask for a personal guarantee, holding the borrower liable to repay the loan if it fails. Collateral and Personal Guarantee requirements are essential for the loan process.

Business Plan

Crafting well-structured business plans is highly recommended. Lenders may require comprehensive business critical performance data to comprehend the business’s objectives, strategies, and precise financial insights, which will eventually lead them to success.

Pulse is a tool that will offer all the vital financial insights necessary for this purpose. A business plan showcases the preparedness of borrowers, which ultimately improves the chances of loan approval.

Cash Flow

A well-prepared cash flow statement protects the financial health of a business, where positive cash flow signifies a healthy business. It enables companies to make informed decisions for growth and expansion. Lenders are more confident in borrowers when there is positive cash flow, which simultaneously enhances their chances of loan approval.

5 Steps to Commercial Loan at Nucleus

Step 1: Submit the Application

Before submitting the application, make sure which loan type aligns best with your business goals. Once you decide on the loan type, submit your online application, which requires essential details such as business information, trading information, loan information and personal details.

Documents required:

Loan TypeNBL (Nucleus Based Loan)RBL (Revenue Based Loan)
Eligibility• Minimum 12 months trading history
• At least one Director based in the UK
• Your business has been trading for at least four months.
• At least 1 Director must be based in the UK.
• Be clearing a minimum of 10 transactions per month.
• Have access to Open Banking.
• Be backed by personal guarantees.
Documents• Access this product via Open Banking and Open Accounting• As we require Open Banking access on all revenue-based loans, decisions are instant.
• Legals and a Docusign link will then be sent immediately should you wish to proceed.

Step 2: Get the Offer

Once you submit the application with Nucleus, our AI-powered system processes your application quickly. This efficient system allows Nucleus to quickly evaluate your application and generate loan offers based on your financial profile and needs.

Step 3: Accept Your Offer

Once you receive the offer, you can decide whether to go ahead with the agreement. If you choose to move forward, you can sign your documents remotely and effortlessly on any device, anytime, ensuring a seamless and effortless process.

Step 4: Receive Your Funds

After finalising the agreement and completing the paperwork, Nucleus releases the funds directly to your business account. Enabling quick fund access and smooth functioning to achieve your business objectives.

Step 5: Flexible Repayments

Nucleus offers straightforward repayment options to make managing your loan hassle-free. They provide fixed, weekly direct debits, which simplifies budgeting and ensures that repayments are made consistently and on time.

Common Mistakes to Avoid

  • Understand what kind of loans are available based on your business’s unique needs.
  • Make sure you complete the documentation process without any delays and errors.
  • Provide accurate information about your business, loan and personal details for a smooth application process and to improve your chances for the loan.
  • Be prepared with your personal documents, such as financial statements and tax returns, if required.
  • Pay attention to details and avoid any kind of errors in the application.
  • Regularly review and maintain your credit reports and other financial statements.
  • Be prepared with a futuristic business plan to present to the lenders if required.

Conclusion

Commercial loans are a valuable tool for businesses seeking to secure financial stability and growth. With crucial knowledge about different types of commercial loans and their application process, companies can make informed decisions, craft efficient business plans, build stronger relationships with lenders and increase loan approval chances. Explore how Nucleus can simplify this process and assist many kinds of businesses like retailers, cafes, properties, manufacturers and more such success stories. Apply now and take your business to new heights.


BY Pooja Jaiswal

5 MIN

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