A Guide to Tennessee Commercial Lending

If you have a business in Tennessee or are thinking of starting one, you’re in good company. Many entrepreneurs and talented individuals are moving to Tennessee to take advantage of its favorable tax incentives, such as low corporate taxes and no personal income tax. It’s no wonder Tennessee ranked sixth for the best business climate in the country.

Even with these advantages, running and growing a business isn’t always smooth sailing. Lack of capital is still the main reason businesses don’t succeed.

Fortunately, many business financing options are available. Keep reading to discover key information about commercial lending in the state of Tennessee.

7 Most Common Commercial Loan Types in Tennessee

Whether you’re looking to fund your business in Johnson City or buy an investment property in Murfreesboro, there’s commercial credit for every business situation.

Here are the small-business loans we offer at Clarify Capital.

Business Line of Credit

A business line of credit works like a credit card. You receive a revolving credit limit that you can withdraw as needed. You only pay interest when you use the funds. The account replenishes as you repay the balance, and you can withdraw again.

Short-Term Business Loans

A short-term business loan comes with a fixed loan amount with a set interest rate. The loan is repaid through regular payments plus interest based on the term length.

As the name implies, it has short repayment terms ranging from six months to two years. You can use this type of loan to cover many business expenses, but not long-term financing as with mortgage loans.

Equipment Financing

An equipment loan is designed to help businesses needing to buy machinery necessary for their operations. Business owners can purchase medical equipment, farm vehicles, or computers through equipment financing.

This type of financing is also easier to qualify for because the equipment serves as collateral for the loan.

Invoice Factoring

Invoice factoring is a type of credit that lets business owners borrow money using accounts receivables as collateral. You receive up to 100% of the total invoice value upfront.

The factoring company collects the money from your customers when the invoices come due. The lender takes their fee, and any remaining amount is paid back to you.

Working Capital Loans

Working capital loans are commonly used to pay for operating expenses, such as inventory, rent, utilities, and salaries and wages. This type of financing is generally unsecured and easier to qualify for than some other loans.

Invoice financing, merchant cash advances (MCAs), short-term loans, and some SBA loans are considered working capital loans.

Merchant Cash Advance

A merchant cash advance (MCA) is an advance, not a loan. With an MCA, the business receives cash upfront in exchange for a percentage of its future sales.

MCAs are advantageous for business owners with inconsistent revenue because the installment amount depends on their daily or weekly sales.

SBA Loans

Access SBA loan programs through the U.S. Small Business Administration (SBA). The agency backs these loans, meaning the government pays up to 85% of the unpaid balance to the lenders (i.e., banks, credit unions, and nonprofit organizations) if borrowers don’t default.

You can use SBA loans for all types of business expenses, including refinancing existing debts, commercial mortgages, or construction loans.

What Do Commercial Loan Lenders Look for in Tennessee? The 3 Cs Explained

Every lender has their own criteria and ways of evaluating and underwriting your loan eligibility. Here are the basic requirements that most financial institutions and alternative lenders look at when businesses apply for a commercial loan.

Credit of the Borrower

Lenders look at your personal credit score when you apply for any type of business financing because it represents your creditworthiness. It reflects how responsible you’ve been with your debts in the past. If your score is in the 670 to 739 range, you won’t have much difficulty getting approved for loans. Higher credit ratings also help you get better rates and terms.

Clarify recommends borrowers have a minimum credit score of 550. That said, we’re committed to working with all business owners, no matter what your credit looks like. Call to speak with a Clarify advisor and discuss the financing options available for you.

Cash Flow of the Business

Lenders also consider your company’s revenue when you apply for a loan. They want to know that you have the cash flow to repay your loan. In addition, lenders use your annual revenue to calculate the loan amount you can borrow. You may need to provide bank statements, income tax returns, and profit and loss (P&L) statements as proof of income.

At Clarify Capital, we recommend that your business generates at least $10,000 a month. On the other hand, Bank of America has a minimum annual revenue of $250,000 for commercial real estate loans and equipment loans.

Collateral of the Business

You must provide collateral when applying for a secured small-business loan, especially for real estate lending. You can secure a loan with personal or business assets, like equipment, vehicles, machinery, real estate, inventory, or accounts receivable. The assets you pledge can be seized and sold by the lender if you can’t make your payments.

Where Is the Best Place to Apply for Tennessee Commercial Loans?

You have a couple of options when applying for a commercial loan in Tennessee — whether you need capital to purchase inventory or commercial property in Chattanooga, Memphis, or Nashville.

Tennessee Financial Institutions

It’s a good idea to apply for a loan from a financial institution you have a relationship with, like local banks and credit unions where you have bank accounts and investments.

Keep in mind that banks typically have stricter requirements when it comes to credit scores, collateral, and business income. Bank loan approval can be difficult if you have a new business or a lower credit score.

Clarify Capital

Work with us! Give us a call and speak to a Clarify advisor if you don’t know where to start or feel overwhelmed. We’ll guide you through the loan process and help you choose the best loan for your business needs.

With Clarify, you can access more than 75 lenders to get the best rates. The loan application process is easy, and you can get approved quickly. We also help you qualify for financing options that traditional banks don’t offer, such as invoice factoring and merchant cash advances.

Tennessee Commercial Loan FAQs

Get key information about small-business loans in Tennessee from the most common questions borrowers like you ask.

What Interest Rate Can I Expect for a Commercial Loan?

The interest rate you get for any type of loan depends on the lender. Lenders will base the rate on your qualifications, the type of loan you’re applying for, the repayment terms, and the collateral you pledged.

In 2022, the Federal Reserve raised the base rate to curb inflation. Since SBA loans are known for their low rates, use them as a guide to assess whether you’re getting a good rate.

  • SBA 7(a): 9.75% to 12.25%
  • SBA Express loans: 12% to 14%
  • SBA Microloans: 6% to 9%
  • SBA 504 loans: 6.032% to 6.534%
  • SBA Economic Injury Disaster Loan (EIDL): 2.75% to 3.75%

What Is the Maximum Interest Rate Allowed by Law in Tennessee?

The maximum effective interest rate allowed by law in Tennessee is 11.50% per year. However, an effective interest rate is different from a nominal rate. It also doesn’t apply to installment loans, loans under $1,000, or single-payment loans.

In addition, state usury laws only apply to what one person or corporation can charge another. Banks, financing companies, and other types of commercial lenders operate under different laws. This is why interest rates for business credit cards and commercial loans might be higher than the rate mentioned.

What Credit Score Do You Need to Qualify for a Commercial Loan in Tennessee?

When it comes to credit scores, the higher, the better. A high score means you have a favorable credit history. Bank loans typically require a minimum credit score of 670, which is the low end of a good credit score.

When you partner with us, we recommend a credit score of at least 550. Speak to a Clarify advisor to discuss loan options if you have a less-than-favorable credit history.

Let Clarify Capital Help You Quickly Secure the Best Tennessee Commercial Loan for You

At Clarify, we understand that getting a loan is necessary to run and grow your company. This is why we are passionate about helping small-business owners like you. We make the loan process as quick and easy as possible, so you can get back to doing what you love.

Grow your business in Kingsport, Knoxville, or any part of Tennessee. Fill out the online application or talk to a Clarify advisor today to discuss loan options available for you. Get your documents ready and receive your funding in as little as 24 hours.

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