Tips to Apply for Conventional Business Loan

Conventional Business Loan:Unsecured business loans are finance options.

Such as credit cards and lines of credit, that require no collateral.

Unsecured business loans tend to be much easier to get than bank loans.

Which require extensive documentation of business activities as well as company and personal assets.

But interest rates on Conventional  business loans tend to be considerably higher than on other types of business credit,

If your business is ready to grow, Nigerian Enterprise Bank has a variety of lending programs for businesses of virtually any size or level of complexity.

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We understand the liquidity needs of a wide range of different industries.

AEB’s experienced and seasoned loan officers will work with you to strategically design a lending package that’s right for your business.

Conventional Business LoanConventional Business LoanConventional Business Loan


What is a Conventional Loan?

A conventional loan is a type of mortgage that is not part of a specific government program.

Such as Federal Housing Administration (FHA),

Department of Agriculture (USDA)

Or the Department of Veterans’ Affairs (VA) loan programs.

However, conventional loans are commonly interchangeable with “conforming loans”.

since they are required to conform to Fannie Mae and Freddie Mac’s underwriting requirements and loan limits.

There are two primary categories of conventional mortgages:

  • Conforming: A conforming mortgage follows the guidelines put in place by Freddie Mac and Fannie Mae, including loan limits.
  • Non-conforming: These mortgages include both “jumbo loans” which exceed the loan limits imposed by government-backed agencies, niche products for unusual circumstances and riskier products that are much less common these days.

Why Choose a Conventional Loan?

Most home buyers choose conventional mortgages.

Because they offer the best interest rates and loan term.

Usually resulting in a lower monthly payment.

And since most people choose a fixed-rate loan over an adjustable-rate mortgage.

They don’t have to worry about rising mortgage rates, which makes it easier to budget.

What are Non-Conventional Loans?

Examples of non-conventional loans include.

All government-backed loans and loans that do not meet Fannie Mae or Freddie Mac’s requirements.

Government backed loans include the FHA, VA, or the USDA.

Jumbo loans are also non-conventional.

Because they are not required to follow the guidelines.

And exceed the loan amounts set by Fannie Mae, Freddie Mac, FHA, VA, and USDA. In general:

How Do I Qualify for a Conventional Loan?

Without the backing of the government.

Conventional loan borrowers pose a bigger risk to the institutions who issue the mortgage.

As such, borrowers must meet three basic requirements.

Conventional Business Loan:Read the following guidelines.

  • Obtain applications for Conventional Business Loan by speaking to a representative at your bank.
  • Your banker can help you sort through the options and explain the difference between business credit cards and business credit lines.
  • Your bank may also be able to help you determine whether you are eligible for lower-interest, secured business credit.
  • Put together the bank account information you need and complete the applications.
  • These applications will usually just involve filling out a few lines providing contact and bank information, as well as your social security number.
  • Apply for unsecured business credit as part of an overall financing plan that also includes other types of credit options, such as bank loans and personal loans.

Save money on interest payments by using lower-interest alternatives for longer-term debt, such as major start-up and build-out costs that will take more time to pay off. Whenever possible, use your higher-interest, unsecured business credit to pay for short-term expenses such as inventory that you will turn over quickly.

If you can, transfer balances from unsecured business debt to secured financing options to lessen the amount you spend on finance charges.

1. Make a sizeable down payment

The standard down payment for a conventional loan is anywhere between 3 and 25 percent of a home’s value depending on the borrower’s credit and financial condition. For example, a $100,000 home could require a $20,000 down payment.

However, depending on a lender’s unique specifications, a borrower may be able to put down as little as 3 percent at closing. Just keep in mind, this option is typically only available to those who meet additional requirements, like being a first-time homebuyer. Remember, with a larger down payment, homeowners also enjoy immediate equity in their home.

Conventional Business Loan

2. Prove a stable income

To qualify for a conventional loan, your monthly mortgage payments and monthly non-mortgage debts must fall within certain ranges. For instance, a lender may require your monthly mortgage payments (which may include taxes and insurance) not exceed 28 percent of your gross monthly income. In addition, your monthly mortgage payments, when combined with your other monthly debt payments (car loans, student loans, credit card bills, etc.), may be limited to a maximum of 36 percent of your gross monthly income.

3. Have a good credit score

Your credit score also plays an integral role when qualifying for a conventional loan. In fact, most lenders require a minimum FICO credit score of around 620 to obtain approval.

Benefits of Conventional Home Loans

While there are several benefits to securing a conventional mortgage, the type of loan you receive will be driven by factors that may not be in your control — such as FICO scores and other factors described above. However, if you have the option to choose your loan type, there are key advantages. For example:

Faster Home Loan Processing

Conventional loan processing tends to be more streamlined since the borrower deals directly with the lender and isn’t dependent on government approvals. As a result, conventional loan applications typically have shorter and less complicated approval processes.

Reduce or Avoid a Mortgage Insurance Premium

It’s more likely that you can avoid mortgage insurance premiums (MIPs) with conventional loans than with government insured loans, largely because conventional loans require higher down payments. However, when you put down less than 20%, you will still need mortgage insurance (MI). The amount may be less than what you would pay for a government loans with the same down payment, depending on your credit profile, and other factors.

Lower Mortgage Interest Rates

Private lenders may compete for your business if you are deemed a good credit risk because of income, credit score and other factors. Because of this, you may be able obtain a more attractive interest rate.

Compare Lender Fees

Conventional loans are offered through private lenders and the fees are not set by the government. This means the fees can vary widely among lenders — not necessarily a bad thing since you might save money. The key is to educate yourself and comparison shop.

Conventional Business Loan:Advantages and disadvantages of  Conventional Business Loan

If you start a new business or you want to expand an existing one.

You may consider third-party financing, such as a business loan.

There are two types of business loans: secured loans and unsecured loans.

While a secured business loan is backed by collateral, an unsecured business loan is not.

Obtaining an unsecured business loan has advantages and disadvantages.

Conventional Business Loan: About unsecured business loans

Lenders who offer unsecured business loans will not require your business to pledge any collateral to obtain the loan.

However, you must still meet income and credit requirements.

Some lenders may also offer businesses a revolving line of unsecured credit.

Conventional Business Loan:Advantages

Conventional Business Loan are easier to obtain than secured business loans.

Because your business does not need to supply collateral.

While lenders can seize the collateral if your business defaults on a secured loan.

A lender cannot take any of your business’ property if you default on an unsecured business loan unless he obtains a court order.

Finally, if your business files for bankruptcy, the court may discharge unsecured loans, but it will not typically discharge secured ones.

Conventional Business Loan:Disadvantages

Because unsecured loans are more risky for lenders.

They usually include higher interest rates than secured business loans.

Which means your business will pay more over the life of the loan than it would have paid for a secured loan of the same amount.

Higher interest rates also cause the individual loan payments to be higher and more difficult to afford.

Finally, unsecured business loans are harder to qualify for.

If your business has a poor or nonexistent credit history, the lender may not approve your application.

Conventional Business Loan:Considerations

Defaulting on any type of business loan, including an unsecured one.

Will affect your business credit rating.

Though a court may discharge an unsecured loan in bankruptcy.

It will not discharge it if the creditor has already obtained a judgment against you.

Some lenders may offer partially secured loans.

which are secured with collateral that is not worth the full value of the debt.

Conventional Business Loan:Pros and cons of a conventional loan

Conventional Business Loan:Down Payments

One point disadvantage of a conventional mortgage loan is that equity builds faster because of the higher down payment expected upfront.

On the other hand, the higher down payment makes it more difficult for some consumers to obtain a conventional loan.

With the larger down payment expected on a conventional mortgage loan.

As much as 20 per cent in many cases.

The lender may not require the borrower to have private mortgage insurance.

Which can be a plus. Conversely, if the borrower does not have a significant down payment.

The PMI will likely be required and the borrower must then meet the requirements of a mortgage insurance provider.

which is essentially like applying twice for loan approval.

Concerning conventional mortgage loans, down payments may need to be authenticated as belonging to the borrower.

Showing the lender that the applicant has saved to obtain the loan.

Or that the down payment is a gift from someone and not a loan that person expects to be paid back.

Conventional Business Loan:Interest rates

A disadvantage of conventional loans for borrowers with lower credit scores means higher interest rates and fees often become part of the loan terms.

The lender may also demand a higher interest rate if it is allowing the borrower to include part of the closing costs into the loan.

Conventional loans may carry higher interest rates than some government loan programmes.

Lenders generally offer conventional loans with a choice of fixed or adjustable interest rates.

With many having fixed rates for a predetermined number of years.

This can be a plus for borrowers.

On the downside, adjustable-rate loans can result in fluctuating monthly payments.

Read also:Best banks for conventional loans

Conventional Business Loan:Terms and Conditions

A plus to conventional loans is that lenders may be more willing to negotiate terms.

And conditions than with a government-backed loan where the lender must follow standard guidelines.

In addition, conventional loans, on average, are processed faster than any government-backed mortgage.

But borrowers may be required to pay a non-refundable fee at the time of applying for the loan.

And if approved, the terms of a conventional loan may include a stiff prepayment penalty.

Meaning the borrower will be subject to this charge if the loan is repaid early.

See also:Conventional Business loan requirements

Conventional Business Loan:Creditworthiness

With a conventional loan, the decision on qualification belongs solely to the lender.

And there may be fewer restrictions on the applicant’s personal financial situation than a government-backed loan.

On the other hand, a bankruptcy or home foreclosure in the past can significantly decrease a potential borrower’s chances of obtaining a conventional loan.

Many lenders require a long waiting period in which the consumer will be expected to repay credit.

For a conventional loan, lenders consider the applicant’s debt-to-income ratio.

The relation between the amount of money required to meet debt obligations each month.

Such as auto loans and credit card payments and the amount of monthly gross income earned.

The lower the debt-to-income ratio, the better terms the borrower may be offered.

Read also:33 Ways to Run Money Exchange Business in Nigeria


The bottom line is that conventional loans are really only available to borrowers with good credit and some available cash for down payment.

If you are fortunate to be an attractive borrower.

Then you might have the ability to obtain a loan at a lower cost.

And have it processed faster than with a government insured loan.

However, before you decide to apply for a conventional loan.

Make sure to speak with at least a few mortgage professionals.

Remember, each lender offers different rates, terms and fees.

So it’s best to receive a Loan Estimate (LE) prior to committing to one institution.

This additional research will help you secure the best mortgage terms possible for your future home loan.

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