Commercial finance is commonly known as a type of business loan or secured loan where a bank or a lender arranges to have additional funds given to you so that your company can resolve any financial setbacks.
Commercial finance providers provide more money to businesses that need it. If you would like to have a secured loan to use on company expenses, then you or the management has to take steps to make sure that they have enough money to fit any forecasted need for it. Thus, the need to get additional funds in the form of debt.
Things to Remember
For your company to have debt on a commercial level, your business should have had a public dealing that spans more than three years; this will be the only time a bank may consider your application.
If your company deals with business to business strategies, then the bank may grant you small loans, but will not help any big loans that your company may have. If you are in the government sector, you are eligible for big money loans from banks.
Types
Short-term
When you get into an agreement where you can buy goods or probably services on account, then you are working on trade credit, and this happens without the need to shell out cash. It is a great help for businesses for their financial growth and may be extended by suppliers on a “Buy now, pay later” scheme.
For business credit cards, its sole purpose is to assist the business financially and may not be used in any way for personal use. Companies of all sizes can readily benefit from the use of business credit cards, like for out-of-town gatherings or emergency meet-ups.
Medium-term
Let’s say you get to gather a good number of people to shell out money, no matter how small it is, to finance a business venture; then you are getting into crowdfunding. It is a way for people or companies to raise money and is best for people who can invest or probably donate to crowdfunding projects in exchange for profit or reward.
Bridging finance is a temporary loan that can get companies where they need to be, which may be towards a situation where the business has already cleared the loan in full, or if the company may have already gotten a more permanent form of funding.
Long-term
If you need a loan, but you have a considerable property that you can put up as collateral, then you can apply for an asset-based loan. It can be secured by inventory, accounts receivable, or property that your company may own.
Say you have a lot of unpaid invoices, you can sell them to someone else and get money for it; this is what you call invoice factoring. On the other hand, for invoice discounting, commercial finance providers can take your unpaid invoices into account, and provide a total sum of money that is less than the total of the outstanding invoices.
The plus side to making use of invoice discounting is that your company will still have control over their books. The amount of debt given by the financial company would be less than the overall amount of outstanding receivables, which may typically be 80% of all invoices that are less than three months old.
Overdraft financing is given when companies make their payments from their current account, thus going over the available cash balance. It also allows businesses to get short-term funding, although it does happen that the loaned amount is repayable on demand by the bank.
Summary
When you need funds for your business, you would need to understand what type of business that you are eligible for, and of course, the process on how you will be paying the loan off. One thing is for sure; you would not want to lose your business because you did not have any idea how to pay your debts.