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Mar 09 2018
  • By wpengine

What is commercial financing in general?

Financial institutions make a series of products available exclusively to commercial entities. The term is broadly used to apply to any financial services and products specifically aimed at business owners. Examples of commercial lending includes accounts receivable, inventory, equipment, and lines of credit.

Overview of products

All products offered to commercial clients are specifically designed to meet the diverse needs of businesses. Business owners can use these products for a number of reasons, including meeting expansion or cash flow needs. Commercial financing products encompasses all forms of lending to meet any particular business need.

What are the different types of commercial financing services available?

There are financial products available for practically every business need. Accounts receivable financing is used to secure funding upfront for products purchased by customers to be paid at a later time. This product is used to temporarily bolster cashflow until the invoice has been processed. Equipment financing is a form of funding that is used to help businesses purchase the necessary equipment needed in order to remain competitive in the marketplace. Inventory financing is another form of financing available to businesses. This allows companies to purchase inventory such as material at the most favorable rates in exchange for finished goods.

What are the qualifications?

Much like personal loans, companies must be able to qualify for commercial loans. Qualifying businesses are only able to qualify for these products and services if they meet these requirements. Most companies are required to document their income. The income documented on paper should demonstrate positive cash flow to give lenders confidence. Property value is considered as a part of the application process. The property is used as a form of collateral when applying for a loan. The property’s value and the borrower’s net income must meet certain thresholds in order to qualify for the loan. The commercial lenders also look at the debt the business has. The debt of the business has to be 20 percent lower than the income generated. Credit history is also something that is factored into the decision process when considering a loan.

Other ways commercial lending is used

There may be an existing opportunity that cannot be pursued due to lack of funds. Commercial financing can make lines of credit available to quickly act on these opportunities, removing these obstacles. A company may have peak seasons for business. This means that the company may have slower seasons where they need a little more assistance. Commercial lending products support cashflow needs during the slower business cycles. Businesses just starting out may benefit from access to more capital in order to purchase the resources needed to grow their business.

Commercial financing constitutes any type of loan being used for business purposes. All businesses that pursue commercial lending are required to meet certain standards to increase chances of being approved for a loan. The commercial lending services offered to businesses can be leveraged for use as capital or to meet expansion goals. Other forms of lending are used for equipment or to manage accounts receivable needs.

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