Now that America is in the deep clutches of a recession, and the credit crunch has really hit hard, many businesspeople are turning to commercial lending as a source of capital to maintain their business. If you are in this position, there are several points that you should consider before signing on the dotted line. You should consider whether you should actually turn to commercial lending or not. If you do decide to get a commercial loan, you need to be aware of the mountains of paperwork, many rules and regulations and the legal commitment by your company. In the past, most businesses turned to their local bank for commercial lending, not so in these days of teetering banks and the credit crunch. There are other options, and we'll explore a couple of them. After reading this article, you should be better equipped to enter into contract with a lending firm, whether that is your bank or some other financing company.

As times get tough, many companies look to commercial lending to supplement their cash flow and to get them through the rough patches of their business. The decision to take out a commercial loan is not one that should be taken lightly, and there are several points that you should consider before doing so. The big question that you should ask yourself, is whether you really absolutely need commercial lending to support your business or not. In asking this question, you need to determine whether your business or industry is simply in a temporary downturn, or is the situation more grave than that. Many businesses are cyclic, in that they prosper more during certain times of the year than others. If you are simply in the downward part of a cyclic business cycle then commercial lending is an easy solution to maintaining your cash flow. However, if your business is in more than just a normal downturn in the business cycle, you should reconsider the necessity of a commercial loan. Commercial lending should only be used to get a business through a rough patch. A business that is failing, or an industry that is failing (ie. the newspaper industry) will have to adjust their business practices in order to build their business or industry back up again. A commercial loan, or commercial lending should not be used to change the direction our focus on the business. Commercial lending should be looked at as temporary as it is not actual cash flow.

Another point to help you determine whether you should actually apply for a commercial loan is whether your business has or maintains any assets or properties. If your business or company is asset poor, that is, it either has mortgaged assets or no assets at all, you would be better off to consider other options then commercial lending. If however, your company has buildings, properties or equipment that it owns, those items can be used as collateral in a commercial lending situation. To go with unsecured loans, is a very poor choice and should only be made as a last resort. You will end up paying substantially higher interest rates on unsecured commercial loans as compared to secured loans. You do not want to add to your companies debits with a high interest rate when you are struggling to restore your company's cash flow.

If you do decide that commercial lending is the right approach to solving your cash flow issues, the next point you'll need to think about is to whether you will go about applying and processing the loan by yourself. If you have ever purchased a residential home you will know the mass of research and mountains of paperwork that is required to make a purchase that is both practical and prudent. You can just imagine how much more paperwork and knowledge is required when the amounts are substantially higher and there is more on the line. For commercial lending, it is almost always best that you at least consult with a business lawyer. Better yet, you should consider actually hiring a business lawyer to process the complete loan for you. There is a substantial amount of research that needs to be done before you should go ahead with the loan. Not only does the fine print of the loan itself have to be read and understood but determination have to be made about what will happen if, say for instance, your business were to fail. A business lawyer who is familiar with commercial lending practices can guide you through the pitfalls of a commercial loan. Not only will he understand the procedures, and required paperwork, but he will also have staff on hand to wade through the reams of paperwork that will be required to process the application. The second asset that a business lawyer will provide to you, is that he can provide quality advice about what step is right for your business and what direction you should go. Business lawyers often have extensive experience not only with commercial loans but with the actual everyday running of businesses. They are an invaluable source of information for the average business owner who is really only intimately familiar with his or her own particular business and industry. Not only could you use your business lawyer for the actual loan process, but also use your lawyer for a source of knowledge regarding your best business practices. This is especially important in these days of suspicious lenders and investors.

This brings us to our final point regarding commercial lending. Where are you going to get your money from? Even though federal assistance has bailed out many banks, and has provided an influx of cash to still stable banks, many business people are finding that banks are extremely tight with their money and not always willing to lend out for commercial purposes. While this is prudent for banks and their business model, it does make getting a loan a much more daunting procedure for the average business owner. In these times there are other sources of cash that you can use for loans. Private equity firms are probably the best option for business owners who have been turned down by their bank. Private equity firms are typically small companies that are investing the cash assets of private citizens. They too can be tight with their money, but they typically are open to businesses because they understand how businesses work. You will likely end up paying a slightly higher interest rate than what a commercial bank would charge, but on the other hand if a commercial banking loan is not available to you then this would be your next best option. Private equity firms are also a wonderful source of information for the small business owner. They are often run by either ex-businesspeople who have been so successful that they have sold off their business, or by rich entrepreneurs who now maintain their living and lifestyle by lending out their money. These people have been through the trenches and have come out the other side wildly successful. They will also often take a personal interest in your business and your business model. They will want to be sure that your business is stable so that they do not lose their money. Do not view them and their inquiries with suspicion but rather take advantage of their knowledge and their assessment of your business knowing that they are providing you with an outside, unbiased look at your business model.

Another source of lending cash might be a mortgage company. Commercial mortgage loans are simply loans that are based on the assets of your company being held as collateral. These companies usually provide loans of private funds to commercial entities for a slightly higher interest rate than what you would be charged by your bank, and will only give you a loan based on the security of the property that you put up against it. These types of loans will also require substantial paperwork in that you will have to show the actual value of the property or items that you are putting up as collateral. However, if your bank is unable or unwilling to enter into the other lending situation with you, a commercial mortgage company may be the only answer.

Now that you see just a few of the points that you must consider before going for commercial lending, you probably look at a commercial loan and a whole new light. There is a lot more to it than just going to the bank, sitting down with your friendly bank manager and saying, "I need some cash." These types of arrangements are in the distant past, today's commercial lending is a massive business enterprise and these types of contracts and relationships should not be entered into lightly. Once you determine the viability of your business, it's actual need for an influx of cash, and the value of your business assets, only then can you decide whether a commercial loan is right for your business or not. A lawyer can help you assess your business situation and can provide you with advice about what direction you should take your business, and at to whether you should actually get a commercial loan or not. Finally if your banker is unable or unwilling to provide you with the cash you require, you may have to turn to other less known lending facilities for your cash. Commercial mortgage companies and private equity firms should top that list.

So now that you are aware of the dangers and pitfalls of commercial lending, but have still determined to go ahead with a commercial loan my final advice to you is: be careful. Enter into this relationship with your eyes wide open understanding that the company you are getting your loan from is a business just like you. They will do everything they can to protect their assets which is what they are lending out to you. Enjoy the process, and go get a loan today.