Commercial finance is an umbrella term which covers a variety of different financial products. Essentially it is a type of borrowing. A commercial finance package can be created to suit almost any purpose and can be tailored to precisely what the business needs. Used for growth, straightening up cash flow, or staying above water, commercial finance can provide a completely different alternative to a traditional bank loan.
Different forms of commercial finance
When it comes to types of commercial finance, there are lots of possibilities that are available, designed to suit your needs. However, there are several key types of commercial finance. Each one of these can be modified to suit what the borrower needs and their financial position.
A very common form of commercial finance, asset finance effectively allows you to buy a new asset, spreading the cost over a set period. The asset itself would act as security for the lender, with the cost of the asset divided into instalments over the course of the item’s lifespan. This can be great for a businesses cash flow, as you don’t have to cough up for one lump sum. Not only does it ease the financial burden, but you also get the chance to obtain the best and latest equipment in whatever industry you’re in.
A specific type of asset finance, hire purchase means you will pay a deposit on an asset, then repay it over monthly instalments. However, until the asset is paid off, because of the hire purchase agreement, the lender would always retain control of the asset itself.
A very similar financial product to hire purchase, but with some important differences. The technical process works in a very similar manner to a hire purchase agreement, with first paying a deposit and then paying the rest over instalments. The big difference between the two comes at the end of the leasing agreement. At this point, you would have a few different options. The asset would be returned to the leasing company, you could have the option of upgrading the item, or you could renegotiate a new lease.
Refinancing is a brilliant option, when it comes to injecting your business with cash. A lender will effectively give you a loan, using your assets as security. So, if you’re suffering from cash flow troubles, but you’re asset rich, you get a significant boost to your cash flow, you’re then able to repay those loans over time.
A bridging loan is a financial package designed b lenders to ‘bridge the gap’ between purchasing one asset and selling another. So, if you are waiting on the sale of an old set of offices, to afford to move into a new one, a lender would bridge you a loan so that you can move forward quicker. Perfect if cash flow is tight, but you have the money tied up in assets.
Restructuring your business
Although restructuring isn’t a form of commercial finance, using a commercial finance option to boost your cashflow can put you in a position to restructure your business for the better. Restructuring would mean taking an in-depth look throughout the whole business and assessing how efficient your business processes are. If you’re already strapped for cash, one of the commercial finance options can give you that opportunity to assess and re-evaluate.
It’s important to remember that as with any form of commercial finance, they are only likely to accept a deal if you have a good strong credit rating and can see the value in your business. Depending on what type of deal you go for, you always have to consider the effect of a debenture, which is a form of security lenders take out against you. Knowing your rights, if you debunk on a commercial finance is vital, as creditors may take legal action to get their money back.
With all the potential variety available when it comes to commercial finance and the great advantages they can give you, it doesn’t matter what sort of business you have, it’s more than likely there will be a financing option ready to help you.
With the various forms of commercial finance available, there are plenty of options set to help businesses. It doesn’t matter what type of business you have, there could be a financing option ready to help you.