Typical Commercial Loan Rates

Commercial loans are a major part of the banking industry. Learning how they work can help you obtain the lowest possible rates for business. They rates are calculated on several factors. Because these financial products are vital sources of funding for businesses in all sectors, lenders compete heavily for them. The general economy and level of business activity both affect the rate lenders charge on loans.

The Process 
A company applies to a lender for a commercial loan to buy commercial property or obtain working capital. The amount of revenue the proposed property can bring into the business is one of the chief considerations used to determine the loan's interest rate. A debt servicing ratio is often used to calculate this income amount. 

Risk Assessment
A lenders main objective is to determine if the business is on sound financial footing and acceptable credit risk. The riskier the business the higher the loan rate. 

Personal Risk Rating
Depending on the legal structure of the business, the borrower's personal history can come into play. Their FICO credit score, as well as personal assets, can be considered under this plan. The higher the borrower's reserve, the less risky the lender views the loan.

Property Types
The type of property being purchased is also considered when a commercial loan is requested. If the property is undesirable to the lender, the rate will be higher for the loan. Office and retail space is favored by most and properties that require special use permits or pose environmental hazards are considered to be great risks.

Negotiate Fees
If at all possible, negotiate with the lender. Lenders charge a prime rate plus a percentage of the total loan. Inquire about getting fees and other charges reduced. If your proposal seems like it will be profitable, a lender may be willing to negotiate to keep your business long term. Interest rates may be higher initially, but as your business proves its financial viability, better rates follow.