what is commercial finance?
Commercial finance is a general term that encompasses all types of financial products offered to businesses. These include: factoring, business lines of credit, commercial loans, and more. Commercial finance is exclusive for business purposes and typically deals with dollar amounts of $50,000 or higher.
commercial finance options
Each industry, business and businessman has a different set of needs to consider when looking into financing. The good news is that the commercial finance industry is anything but one-size-fits-all. These are just some basic options available to you:
commercial Credit Cards
Just like with a regular credit card, a commercial credit card allows you to borrow money from the card company (often affiliated with a bank) with the understanding that you will owe back both the borrowed amount and accrued interest. Credit cards offer flexibility to make online purchases and dole out cards to multiple employees for expenses. This also enables businesses to make big ticket purchases at a moment’s notice and cover day-to-day needs without carrying around large sums of cash.
Small business loans
Small business loans are most commonly used for big one-time expenses such as the purchase of a new machine. The amount you’re borrowing is predetermined and delivered in a lump sum after you’re approved by a lender. In return, you’ll be expected to repay the full amount in monthly installments with interest over a set period of time.
business line of credit
A line of credit is the best choice for businesses who aren’t quite sure how much they’ll need or when they’ll need it. Rather than delivery in a lump sum like a loan, a line of credit is a set amount of money that you can draw funds from as needed. You will need to repay those funds the same as you would with a loan, but since you’re only taking what you need, you’re not responsible for repaying the credit you don’t end up withdrawing.
Invoice factoring is a unique form of financing that doesn’t count as debt since it draws on the income you’re already receiving. If you have accounts receivable problems where invoices are getting paid too slowly for your day-to-day needs, you can trade off those invoices to a factor company for cash up front.
consumer vs. commercial finance
It would be simple to say that the difference between commercial and consumer financing is that one is for consumers and the other is for commercial or business use. The longer answer though has to do with the unique needs of each set of borrowers. Here’s a quick breakdown of how commercial financing often compares to consumer retail.
Higher financing amounts/credit limits
Lengthier/more thorough application process
Lower borrower protection/regulation under government law
More diversified lending options geared towards specific industries/businesses
May require collateral from both business and personal assets
Typically feature shorter terms
Lender may demand periodic business reviews until debt is repaid
the future of financing
The commercial finance industry is becoming an increasingly profitable one thanks to rising interest rates. In fact, as recently as 2018 we saw banks approve a record-breaking 25.5% of loan applications for small businesses. Although alternative lenders were sticking to their typical 56.7% approval rate in 2017, as big banks like Chase start taking over non-traditional lenders we could see some major growth for them as well. The number of businesses in the commercial finance industry has been declining (partly due to these new acquisitions); however, fewer players isn’t slowing anything down. A look at industry reports and forecasts shows strong revenue growth expected to reach $762 billion by the end of 2019. If you’re a start-up or even a just a business looking to expand, this is a good time to consider taking that next step financially!
SEARCHING FOR THE RIGHT COMMERCIAL FINANCE OPTION FOR YOU?
CONEXT® is a debt free option available.
CONEXT® may be your commercial financing solution.
CONEXT® is a debt-free commercial finance option, which means we don't run your credit score, require collateral, or charge interest fees. Our small business financial solutions cost one transparent rate - 3% - and we always work to be in favor of our customers.
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