Commercial Loans

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What Is A Commercial Loan?

A commercial loan is a simple financing option that is designed for larger businesses. Much like business loans for SMEs, commercial loans offer a cash injection to an established company for a fixed monthly repayment over a pre-agreed term.

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How Do Commercial Loans Work?

Commercial loans are usually offered over a term of 1-5 years. However, for larger loans, some lenders will commit to a repayment term of up to 25 years.

Although larger lending is available on a bespoke basis, loans of up to £500,000 are available as standard.

Commercial loans can be offered on a secured or unsecured basis and are usually cheaper than other forms of business loans. This is because borrowing is usually higher and the business larger and more secure.

Funding sources for commercial loans are diverse, from bespoke lenders, high street banks, challenger banks and peer to peer lenders. As this type of funding tends to be at the high end of the market, the number of lenders who are willing to lend tend to be reduced. This is offset by the fact that competition among them to secure a strong client means that excellent terms are still usually available.

Commercial Loan Uses

Commercial loans can be used for a variety of purposes, including:

  • Funding acquisitions, mergers and MBOs (Management Buyouts)
  • Cash flow management
  • Funding growth
  • Cash injections to fund future trade

What Rates Are Available?

Commercial loan interest rates start from as low as 3% for strong businesses. Larger loans may even lead to rates below this figure for successful, established businesses.

The interest rate charged will depend on the strength and credit history of the business that is applying, and the type of product chosen.

Depending on the reason for funding and the sector of the applicant, other products may be used either as an alternative to a commercial loan or alongside it. Various products can be structured to provide the ideal solution to the applicant, on the ideal repayment terms.

Is My Business Eligible?

Although we can offer loans to businesses of any size, larger commercial loans are usually available to businesses who turnover over £1,000,000. Clean credit is preferred, but any minor previous issues that have a strong explanation will be considered.

What Other Types of Funding Could Be Right for My Business?

When looking to take out funding for your business, a commercial loan will not always be the most suitable option for you. Some possible alternatives that should be considered before committing to any new loan are as follows:-

  • Asset Finance – Asset finance can be ideal either for those who are looking to purchase new assets or equipment for their business or are happy to use existing assets as security for a new loan. Using asset finance gives the lender more security and as such may lead to you paying a lower interest rate.
  • Invoice Finance – Invoice finance is ideal when you are looking to raise funds using invoices receivable as security for borrowing. Invoice finance may be ideal for business owners with growing businesses who struggle to show their profitability on paper. Invoice finance facilities can grow with your business and may prove to be cheaper than a commercial loan.
  • Business Revolving Credit Facilities – Revolving credit is ideal when the full loan is not needed at all times, but cash flow is variable throughout each month. Revolving credit works in much the same way as a regular overdraft and may prove to be a better option that a loan where funds are needed consistently but only for part of each month.

The Role of A Commercial Finance Broker

As a specialist commercial finance broker, we are able to structure the appropriate products to ensure the cash injection you need is available and delivered on time. Our role goes beyond just securing you the lowest rate for your circumstances. We listen to exactly what you need, and how you require the product to work for you.

This may lead to a commercial loan being offered in conjunction with other products where required, to fully meet your needs.

Commercial finance is a complex area and needs specialist attention. To get started, discuss your circumstances and requirements with one of our commercial finance experts and we’ll talk through exactly how we can help.

about-the-author-gary-hemming

About The Author

This content was produced by our Commercial Lending Director, Gary Hemming. Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business press as well as local and national press.

Gary Hemming CeMAP CeFA CeRGI CSP  -  
Commercial Lending Director

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