What Are Commercial Finance Companies?

To understand what commercial finance companies are, you must first know what a finance company is so you can have a better understanding of the subject matter. So you’re at right place if you wish to know in detail what commercial finance companies are.

What Is A Finance Company?

A finance company is basically an institution that provides loans to borrowers (both individuals and businesses). Their services may look similar to a bank but they are not.

Finance companies only offer loans and do not offer other services provided by banks such as savings or checking accounts etc. Interest rates offered by finance companies are relatively higher than that of the banks. However, they are also able to offer loans to borrowers who may not have a great credit score by offering secured loans.

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What Are Commercial Finance Companies? 

From the above explanation, I believe by now you may have an idea of what a commercial finance company is.

Well, Commercial Finance companies are finance companies that are into the provision of loans to businesses (usually small businesses) to make a large purchase which they cannot afford from their account. Usually the loans provided by a commercial finance company or any finance company are secured loans. Meaning that the asset or item which will be bought will be used as collateral so that the company can posses or repossess it in case the business fails to make payments.

Commercial finance companies have been of great help to businesses over the years as most businesses rely on them for finance. Although commercial finance companies have higher interest rates as compared to banks, they are not as rigid in terms of eligibility requirements as is the case in banks. This then makes it a bit easier for businesses to get a loan from a commercial finance company than from the bank.

Getting a loan from a commercial finance company is also faster than at the bank where it takes longer to apply and receive a response.

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Types of Loans Offered By Commercial Finance Companies 

These are some of the loans offered by commercial finance companies that business owners can take advantage of:

Equipment Loan

An equipment loan is a type of loan offered to businesses to purchase new equipments such as machinery, vehicle, etc. This helps an entrepreneur to make such huge purchase when the account balance of the business is not enough to pay upfront for such an equipment that is needed by the business.

However, the equipment that is being financed will be used as collateral to reduce the risk level for the lender. You only become the sole owner of the equipment after paying back the loan in full.

Business Lines of Credit 

Another form of financing available to businesses is the business lines of credit which is very similar to how credit card works only that this time it is a business and not an individual. It allows a business to access a specific amount of money they can withdraw from for any operating expense or to solve short-term needs of the business.

So you could have access to for example $15,000 from which the business can withdraw from when the need arises. Interest is charged on the total amount you withdraw and not the amount you have access to.

Term Loans 

A business can also access a term loan which could either be short, medium or long term. This type of loan is very common to come by and the term your business will qualify for depends on how much you’re borrowing among other things.

Short term loans have a payment plan usually not exceeding 12 months. Whereas medium term loans have a loan term from 12 months to 60 months.

Because they are short term loans, they have higher interest rates than long term loans which is usually not offered by commercial finance companies.

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