The Cost Of Money
There are a few quick things you should know about commercial lending vs. personal lending
Commercial Lending vs. Personal Lending
1. Commercial lending rates are higher
People often use personal borrowing rates as a barometer to judge commercial lending but his is never a good way to think about commercial lending rates. Banks realize you are using this commercial equipment to generate revenue and they want, and deserve, a piece of the profits for taking a risk on your business.
2. Rates are based on risk
While personal lending can be relatively simple and based on fewer factors, commercial lending is based on multiple factors identified on the process page.
3. Loan Documentation
Depending on the amount of money sought, loan support documentation can range from a credit application and license, to bank statements, tax returns, and financial statements.
Return on Investment (ROI) vs. An Interest Rate
People get into business to make money and one of the best ways to make money is to leverage every dollar that has been invested into into multiple dollars of revenue. For example:
- Business A has a monthly equipment payment of $1000. Each month the equipment generates $10,000 in revenue. His interest rate is six percent.
Business B has a monthly equipment payment of $1000. Each month the equipment generates $10,000 in revenue. His interest rate is 20 percent.
Both businesses generate $10 per $1 invested. So, are both deals good deals? Absolutely! The difference lies in the risk the bank saw between the two businesses.
If you need help determining whether or not your deal makes sense, call us at 972-905-9577. We will walk you through your numbers and explain to you why you are getting the deal you have. If possible, we will help work with you to find a way to improve your deal through our network of lenders.