Commercial Loans Explained

No matter what we might think of the banks, there are times when a little external finance can go a long way. Thankfully, there is a diverse range of commercial finance products out there to help businesses capitalise on opportunities as and when they arise. One of the most commonly used types of finance are commercial loans.

What is a Commercial Loan?

A commercial loan, or business loan, is a product very much like the personal loans we take out to fund a significant purchase, but designed purely for business use. Commercial loans come in a range of different shapes and sizes, each designed to meet the specific needs of a business.

A few of the commercial loans available in the UK today, include:

• Secured and unsecured loans
• Small business loans
• Startup loans
• Loans to acquire a new business
• Professional loans (for doctors, dentists and lawyers, etc.)
• Loans for the construction of new premises
• Loans to boost working capital

With such a variety of loan types available, it’s pretty clear you can’t simply walk into a bank looking for a business loan and hope to receive the best deal. Each loan type has specialist lenders, and generally speaking, it is from these lenders that you’ll find the most competitive rates.

How Do You Know What Type of Commercial Loan You Need?

With so many different loan types available, there are a few factors you should consider to help determine the best product for you. You should think about

• How much money you need
• What you need the money for
• How long it will take to pay back
• The current financial position of the business
• How long you’ve been in business
• The availability of security, if required
• How quickly you’d like the money in your account

Some short term commercial loan providers will offer sums of up to around £30,000 to be repaid over a period of up to a year, while other lenders will allow you to borrow much larger sums over a longer period of time. By thinking carefully about exactly what you want from a commercial loan, you will be able to quickly eliminate products which are unsuitable for your business.

What are the Benefits of Business Loans?

With so many different products available, one of the real benefits of this type of finance is the ability to find an affordable product that’s a good fit for your business.

Commercial loans can help to regulate the company’s cashflow so you can pay your debts when they fall due and keep creditors off your back. Alternatively, you can borrow money to fund a one-off business expense, such as the purchase of new machinery or another significant asset.

Startup loans give many individuals the freedom to set up on their own, while small business loans can provide the capital injection required to buy stock, employ new workers and generally grow the business.

Of course, commercial loans are only a benefit to your business if you borrow an amount you can afford to repay. However, businesses seeking a loan in the present economic climate will benefit from the extremely competitive interest rates that are currently available.

How Much Does a Commercial Loan Cost?

There are a number of factors that go into determining the cost of a commercial loan. Interest rates can be fixed or variable, and the repayment periods can range from less than one year, up to 25 years or more. Security is also a consideration to factor into the cost of a loan.

Lenders can ask for security to be provided on the loan such as business assets or even a personal guarantee. Although this isn’t a direct cost to the business, it’s essential you think about what the future may hold if you lose a significant business asset or are made personally liable for the loan repayments.

Where Can You Find the Right Commercial Loan for Your Business?

Taking on any kind of debt is a serious consideration for a business, so it’s essential you find the best deal for you. As we’ve discussed in this guide, you cannot take a one-size-fits-all approach to commercial loans. It’s essential you know the type of product you are looking for and where to find it.

A commercial finance broker can be a huge help in this situation. Truly independent brokers are not linked to any particular lender, which means they can research the whole market to find you the very best deal.

In many cases, the most affordable loans cannot be found on the high street, but are offered by lenders that specialise in a particular type of finance. With intricate knowledge of the market, brokers know which lender to approach at any one time to find the right deal for you.