Commercial Finance Explained

If you run a business of any kind, there’s a good chance you’ve heard of commercial finance. There’s also an equally strong chance you’re not entirely sure what the term refers to.

In the sections below, you’ll find a concise overview of the functions, logistics, and potential applications of commercial finance solutions.

Commercial finance definition

Roughly defined, the term “commercial finance” refers to an extensive range of funding solutions that are offered specifically for business purposes. Commercial finance can be provided as a long-term or short-term loan, typically secured in all instances against the borrower’s business assets.

In accordance with the value of the collateral provided to cover the loan, commercial finance may be offered with no specific upper limits in terms of loan value.

What is commercial finance used for?

Commercial finance can be used to cover almost any business expense whatsoever. A typical commercial finance loan could be used by a business to take advantage of time-limited investment opportunities, introduce new products and services, expand into international markets, or perhaps relocate to a more appropriate location.

The idea is that commercial finance provides fast and affordable access to the working capital a business needs to grow, evolve, and diversify. Particularly for small and medium-sized enterprises (SMEs) with limited cash reserves, commercial funding solutions can offer an invaluable lifeline.

Commercial property finance explained

As the name suggests, commercial property finance is a specialised funding solution for property purchases and developments. Commercial property finance may be sought when a business needs to expand, improve, repurpose, or even build a new property from scratch.

Whereas most property development loans are secured exclusively on existing homes and business premises, commercial finance can be secured on a wide variety of assets. Flexibility varies significantly from one lender to the next, though it may incorporate assets such as IT equipment, vehicles, artwork, jewellery, and so on.

How to finance a commercial property

For today’s business owners, there are dozens of options to explore for financing commercial properties. Suitability will be determined by the requirements, preferences, and financial position of the applicant, with short- and long-term solutions to consider.

These include:

• Specialist commercial finance loans.
• Development finance solutions.
• Business credit cards and loans.
• Bridging finance.
• Crowd-funding and P2P lending.
• Commercial mortgages.
• Invoice factoring.
• Business overdrafts.

These are just a few of the funding solutions available for financing commercial property.

Which commercial finance option should you choose?

Contrary to popular belief, no commercial finance option is inherently ‘better’ than any other. There are significant differences from one product to the next, which should be taken into account before submitting an application.

In order to help your broker find your ideal commercial finance option, it’s a good idea to ask yourself a series of questions beforehand:

• What exactly do you need the money for?
• How quickly will you be able to repay the loan?
• Have you carefully considered all applicable borrowing costs?
• What kind of collateral can you provide?
• How much can you afford to repay monthly?
• Have you considered the risks of secured borrowing?
• Will your business type or sector influence your eligibility?

Each of these considerations will help your broker pinpoint your perfect financial product from an extensive network of lenders. Speaking of which, the importance of commissioning a whole-of-market comparison on behalf of your business cannot be overstated.

Each of these considerations will help your broker pinpoint your perfect financial product from an extensive network of lenders. Speaking of which, the importance of commissioning a whole-of-market comparison on behalf of your business cannot be overstated.

In the right place and at the right time, commercial finance can be an absolute godsend. It’s simply a matter of establishing your needs, knowing where to look, and enlisting expert support as early as possible.