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Are you in the world of business? If yes, then you might be acquainted with worlds like “commercial finance” and might also have uttered once or twice in your lifetime or may be more times. However, even it is a very common jargon within the industry; it can still conjure up uncertainty for some business owners who don’t know the options that come to them.
Commercial finance company helps businesses to grow and expand so that they can achieve their goals which are both short-term as well as long-term. The type of commercial finance you will apply will also depend upon the type of your investment. For example, if you are exploring a second office or a commercial property for your business or looking to invest in your new staff and expand the product line and build a team for it, this loan is the best fit.
At first, giving a simple definition to this; a “commercial finance is a term given to large number of business finance item products that includes both long- and short-term solutions, offered by the providers who are external.
Why we need commercial finance support?
It is only possible for businesses to reach a point where growth is imminent through commercial financing. Sometimes there seems to be obstacle in the way of attaining necessary growth like funding option.
Now, these finances make sure that businesses no matter of the size can thrive and hit target instead of missing them. This is because they have to wait to generate enough case to re-invest for them. This is importantly a way to render working amount for businesses.
In this modernistic time, better access to commercial finance showed the way for small and medium size enterprises to prosper. At present, the finance landscape have come to cover more areas, where as once there were just banks, and alternative finance providers who have more business option than ever. It can be said that the new alternatives gave fast access to those who’d otherwise have to go lacking it.
This means, you can find and avail better options, whether it means you’re a customer seeking to shop around within a particular marketplace or a business owner wanting to achieve growth
How does a commercial loan works?
Commercial real estate lending loans usually require collateral which is also known as a backup plan if your business defaults on your loan or declared bankrupt. A lender will usually require a property or machinery or any large asset that your business uses as security. But don’t be mistaken that all properties will be considered as equal value. Obtaining a loan against commercial property or your office or company warehouse will be considered less risky in the lender’s eyes. The commercial loan lending rates will also differ from that of the residential loan.
Commercial Finance: The Different Options Available
Prior to coming access to stand at front of various commercial financing companies in the marketplace, you can set some down.
What types of business loans you can qualify?
At present, you can find more than just one kind of business loan. As such, it is crucial to understand the type of loan you are seeking prior to opting a business financing company that doesn’t render solution as per your requirement.
Therefore, prior to getting to list out every financing company, you can find some quick overview of the entire type of business loans present in marketplace.
SBA loans are known as the gold standard of small business financing. These are loans that are issued by conventional banks, and guaranteed by Small Business Administration. To get a sense of who offers these programs, you can check out the list of some active SBA lenders.
Now, the most popular type of small business administration loan, the 7(a) loan, is large, low rate and long term loans. Loans from the 7(a) loan program are very general financing products, so they’re best for any prime business requirements. But, these are some of the harder loan to qualify; only for borrowers with stellar personal credit, strong revenues and established businesses to qualify.
Conventional termed loans are usually the business loans you’d know. These are lump sum loans that are repaid over certain time duration with regular payment. The long term loans are offered by conventional banks that are very much hard to qualify for.
But, non-bank, and alternative commercial finance agencies do offer the medium term loans. These are the conventional bank loans but somewhat small with slightly high rates and short termed. These loans are easy to qualify rather than SBA loans and bank loans, and are perfect for huge business expenses and investments.
Short term loans are like medium term counterpart which is short lived. Non-banks, and online commercial finance companies offer lump sum loans over short terms with high rates and small amount. As such, you will avail high interest rate with a short term loan product as the commercial financing companies do offer fast financing and more accessibility that you can find at other SBA lenders. They charge high interest rate and riskier borrower because of it.
Now, short term loans can give rise to capitals you’ll require to accomplish short term projects, meet the working capitals and handle any one-off expenses.
Business Lines of Credit
A business line of credit is a financing solution that renders you access to a pool of funds for your business to draw from whenever you require. This is similar to the business credit card where you’ll have to pay interest on the funds you draw and once you pay them back, your line of credit gets filled to your original capital.
Here, the commercial finance companies do offer small as well as large line of credit along with multiple accessibility. These loans are taken to be the perfect financing products for small business financing owners in part as these are very much flexible. The business line of credit works specifically well for owners who are in need to have as a safety net in their pocket, smooth out cash flow or cover regular expenses.
This help one to afford the pricey equipment needed for the business; however it cannot pay for upfront. These commercial finance companies that render financing advance you up to 100% of the value of the equipment that you will pay back over a set amount of time with interest. After you have completely paid up, you will own the equipment.
Equipment financing is a good option for those businesses that require both used and new office supplies, vehicles, machinery and so forth.
6. Commercial real estate loans or property loan
This is a good option if you are looking for any real estate financing to purchase property to upgrade your business. The commercial real estate loans can help you grow and expand your business; a new space means you will have more room for bigger and better teams, facilities to keep more stock and purchase technology. In short, you will be able to purchase items that will enhance your business. The structure of payback is similar to a home loan; you will have the option to choose from a fixed or a variable interest rate, interest + principal repayment, or interest-only repayment.
How Commercial Finance Companies Difference From Banks
The two kinds of commercial finance companies viz: banks and alternative lenders differ from one another in some crucial ways. Here are some of the most important differences to catch up.
There are banks that only offer term loans and line of credit, as such alternative lenders are more flexible with these kinds of financing type they offer. Not only do the commercial finance companies offer line or credit and term loans, rather also working capital loans, merchant cash advances, invoice financing, short term loans and so forth.
Banks are notorious and tight with their credits. As such, alternative lenders open their options to a huge range of small business owners. So, previously unbankable business owners do qualify for the alternative commercial finance companies.
Bank loans do take a long time to apply to, and long time to fund, in case you are approved. Overall, this method of applying can take few months.
On the other hand, alternative commercial finance companies work faster than banks. Some of the longer lenders take nearby 10 days to fund a loan, while some can approve a loan on the same day you apply.
How do they do this?
This is because of the accessibility and speed aspect that goes hand-in-hand with the type of lenders. Many companies do not require as much paperwork on the borrower’s end as SBA lenders and banks do. This means, you spend less time compiling a loan application, and the lender spends less time to review the paper work.
Further, the commercial finance companies also make use on online technologies to underwrite loans more efficiently making it a faster process.
The accessibility and speed difference between commercial finance companies and banks lends itself to a difference in affordability. This is because it works on such a faster time frame and wants to work with less qualified borrowers. As such, they charge high interest rates for commercial loan that what you would find at a bank.
Commercial Finance Companies: How to Choose
After you have found a list of top commercial finance companies, there is a question here as to how to choose them.
This can start with what you qualify for. For sure, you would not like to work with term loan lender in case your credit score was high. Rather you’d consider short term loan or a short term line of credit.
After you have the knowledge about the qualifications and criterion, you can come to know the list of commercial finance companies that will be realistic option for your business. Further, you’d be working with the lenders that will offer the best and meet your requirement within a much low capital.
Are commercial loans in Texas that you should be considering if you are looking to grow your business or increase your cash flow. There is no one right-fit answer for this question; it will depend upon the business goals and the unique needs you will have in order to expand your business. It will be prudent to engage a commercial broker who will have complete knowledge and expertise that will help you as a business owner understand the financing options you have at your disposal.