Without a doubt, one of the primary issues on every business owner’s mind is where to get the money to run a business. Here are a few things to know as you enter the world of commercial finance:

Some Basic Facts

Simply put, commercial financing is comprised of lending options that are utilized by businesses rather than individuals. This branch of financing encompasses a variety of options, some of which are described below. They are offered by a plethora of lenders – from traditional financial institutions (such as banks) to lending companies that specialize in particular types of loans and non-traditional methods of financing. Each option is tailor-made for different types of companies and the unique situations they face at any given stage of their existence. It’s important to do careful research to find out what’s the best fit for you and your specific needs.

A Few Common Types

Commercial loans (also known as commercial business loans) start with a contract between you and your lender which includes the specified amount of money, the agreed-upon repayment plan, and the interest rate and lender’s fees. You can choose between obtaining a secured or unsecured loan: The former is backed by assets (which act as collateral) while the latter is not. A secured loan will typically cost you less money since your collateral lowers the level of risk for your lender, but of course, you have to own suitable assets to obtain approval. On the other hand, with unsecured loans, your lender will examine your credit rating closely and perhaps ask for a personal guarantee.

Invoice (or accounts receivable) financing is another type of commercial finance commonly used by companies that have to wait several weeks or even a few months for their customers to to pay their bills. During the wait, those companies can opt to partner with a lender who will advance funds equal to the value of their invoices. Basically, it’s a sales transaction rather than a traditional loan.

Finally, a commercial property loan is a mortgage designated for companies that want to buy a commercial property, for instance, an office space. In the case of a default, the lender can seize the collateral, which in this case is the property. As with all types of commercial financing, you must own a business entity – in other words, you can’t apply just as an individual.

With so many options at your fingertips, it’s easy to get lost in a slew of information. But armed with a few facts such as the ones explained here, you’ll have a good head start on navigating the road ahead.