commercial finance

Welcome to the world of business growth and opportunities!

If you’re looking to grow your business but are limited by cash flow, then commercial finance might be the answer that you’re looking for.

In this article, we’re going to cover the types of commercial finance and some of the pitfalls that you need to watch out for when considering a loan for commercial purposes.

Company growth is consistently ranked as one of the most challenging obstacles for managers and business owners. Using commercial finance effectively is one of the most important factors in determining how smoothly the business will grow. This article will explain the types of commercial finance and will offer you an overview of the finance options available to you.

What is Commercial Finance?

Your firm may be interested in commercial finance for a variety of reasons, such as the need for start-up money or a loan to aid with marketing and business development. These are just two of the many potential uses for commercial financing. The word “commercial finance” is used to refer to a wide variety of financial products that are available to businesses. These products can be of a short-term or long-term nature with various payment options.

What is useful for business owners to know is that commercial finance interest rates are based on the risk profile of the business – which can vary from lender to lender.

Knowing how to package and present your loan request can make a big difference to the interest rate and repayment terms made available to you.

Invoice factoring, asset-based financing, and company leasing are just a few instances of the vast number of subcategories that may be found under the umbrella term of “commercial finance.” Before you make any promises or sign any documentation relating to commercial finance of any kind, you will want to make sure that you have a complete understanding of what it is that you are committing to.

This is where we can help.

We break all of this down in simple-to-understand explanations that allow you to choose the right loan for your circumstances.

A special thanks to Peter from Savage Money! His online systems and industry knowledge made the whole process transparent, easy to understand and fast.


Types of Commercial Loans

Various specialized commercial loans may be available to business owners. The list below covers the main types of commercial finance that businesses typically take out.

1. Commercial Real Estate Loan

Small businesses who are looking to make a sizable investment, such as buying a piece of commercial property to use in the construction of a new building or the extension of an existing one, generally turn to commercial real estate loans to cover the costs.

Commercial real-estate loans are backed by the underlying property asset which allows people to borrow sizeable amounts in some cases.

2. Credit Lines Available to Businesses

In many aspects, a line of credit serves a very similar purpose for a company as a credit card does for an individual. You won’t get your money all at once; you’ll only be qualified for a certain amount. You can then use your credit line to withdraw money as needed. The fact that you only pay interest on what you really use means you can limit your interest liabilities by using the line of credit strategically.

3. Equipment Financing

Instead of buying your equipment outright, you can finance it with a loan. This means that you have the option to pay for it over time instead of all at once up front. Due to the equipment’s frequent use as loan collateral, this type of loan is easier to secure than others.

4. Term Loan

A term loan is a type of loan in which the lender agrees to give the borrower a certain sum of money for a set time period. For this privilege, the borrower agrees to pay back the loan principal plus interest at the end of the loan period via a schedule of equal monthly payments. This type of loan is often approved for a term longer than one year. The lender stands a decreased risk of loan default since the total amount owing on the loan is reduced over the course of the loan’s term through the use of fixed payments.

This is similar to a personal loan for the business. You get money to do as you wish and pay it back over a fixed term.

5. Loan for Industrial and Commercial Construction

A commercial construction loan is a type of loan that is taken out to pay the costs associated with constructing or remodeling a commercial building. Both brand-new construction and renovations are eligible uses for funding via loans of this type.

6. Commercial Auto Loan

Vehicles can be purchased with a commercial auto loan, which is similar to a consumer auto loan. When planning your fleet, keep in mind that because modern cars depreciate so quickly, many lenders will only finance them for a limited time.

7. Bridging Loans

Bridging Loans generate immediate cash flow, the borrower can meet their preexisting financial commitments with the help of this solution. The interest rates for bridge loans are often rather high, and the borrower is typically expected to back the loan with some sort of collateral, such as the inventory of a firm or a piece of real estate.

Bridge loans are a potential source of financing for short-term cash flow needs. For instance, a property-owner who already owns a property can utilize a bridge loan to purchase a new property before selling their current one.

8. Inventory Financing

There are times when businesses must make upfront purchases of products that won’t be sold for some time. Even if your designs don’t hit the shelves all at once, you might buy materials in bulk up front if you have a clothing line. The goal of inventory finance is to help cover these costs. The stock is used as collateral for the loan.

9. Cash Flow Finance

A corporation receives a loan that is backed by the company’s anticipated cash flows under a financing method referred to as cash flow financing. The term “cash flow” refers to the entire amount of money that enters and leaves an organization over the course of a predetermined amount of time. This includes both cash receipts and cash payments. Cash flow loans, which are also often known as cash flow financing, are repaid using the cash flow that was produced after the loan was taken out. Other times, cash flow loans are referred to as working capital loans.

Equipment Finance

The word “equipment finance” can refer to either a loan or a lease that is obtained by a business to pay for the acquisition of new or used machinery. Any tangible asset that is not real estate can be considered equipment for a company. Office furniture, computer equipment, manufacturing machines, and medical equipment, are all examples of types of equipment.