Are you looking to step your business up a gear?
Do you need a cash injection to support your long-term plans?
Do you need to purchase/hire new equipment or technology infrastructure to support ongoing growth?
Capital is essential to meeting the ongoing demands of everyday business operations.
If you’re looking for financial support for your business, maybe now is the time to consider a commercial loan. And with various loans available to choose from, now you can take advantage and go for those opportunities you’re driving toward.
This post looks at the most common commercial loans, their use, and their pros and cons. You can also find a wealth of key information at directroute.co.uk.
Types of Commercial Loans
A commercial or business loan is a form of capital or cash injection for companies to use as they see fit.
These loans can be used to support business growth, equipment purchasing, debt consolidation, day-to-day operations, and more.
Commercial Loan Types for Business
Commercial Property Loan
As the name indicates, this loan is for the purchase of commercial property. Providing you with the funds to buy additional business space, new premises, or even to purchase commercial property as an investment, commercial loans can provide you with the funding to expand on a large scale.
These types of loans can also be broken down into subcategories, such as blanket loans, which cover the purchase of multiple properties, and permanent loans, which are seen as a first mortgage on a property.
You will find flexible terms on loan amounts with fixed or variable interest rates available and longer repayment terms too.
Business Line of Credit
With many similar qualities to a credit card, business forms of credit allow you to use a limited set of funds when you need them. You will then only pay interest on what you use and not the entire line of credit you have been granted.
This makes lines of credit the most flexible form of commercial loan and can provide a quick fix to meet immediate needs.
Lines of credit is a commercial loan type that offers a lifeline to businesses that may need to purchase equipment and tools or require the cash flow to quickly cover the cost of certain operating expenses. Once the borrowed amount is paid back, you will have your full line of credit back again.
Equipment Financing
Equipment and machinery often come with a big price tag, and many businesses simply don’t have this type of cash to hand. Financing the equipment you need through a loan could be the best solution, paying for the equipment over time with interest included.
However, like with any loan, equipment can be seized if you fall behind on payments, and a debt recovery agency may be instructed to collect any outstanding amounts owed.
(Check our post on the types of businesses that choose to work with commercial debt collection agencies).
Varying term lengths are available with equipment loans, and such financing also provides certain tax advantages.
Term Loans
Often available in higher amounts than what you would receive as a line of credit, term loans are flexible loans that offer a consistent repayment plan over a specific period.
The loan term is typically set between 1 and 5 years, and you will repay the loan over this set period with a fixed or variable interest rate included.
For unsecured loans, the term time is low, and the interest rates are high. For secured loans, the term time is high, and the interest rates are low.
These types of loans mean you can use the money on your business however you see fit, and you will often find term loans used for debt restructuring, building works, equipment, capital works, etc.
Construction Loans
These loans are specifically for the design and build of a structure that doesn’t exist yet.
Overdrafts
With an overdraft, you can withdraw cash beyond your account status within reason.
Auto Loans
If you require commercial vehicles, whether cars, vans, pick-up trucks, etc., financing these through an auto loan can help you complete the purchase in a timely manner and avoid upfront costs and handing over large lump sums.
Bridge Loans
Used to “bridge” the gap/difference between what you need now and your longer-term financial solutions, bridge loans are often short-term and have high-interest rates. However, they can provide you with immediate, temporary cash flow.
Remember, late payment of commercial debts does incur additional charges and puts extra strain and pressure on you and your business.
Invoice Financing
If you need to purchase goods upfront to sell at a later date, invoice financing could be for you. The goods back the loans as collateral; however, we have to point out that invoice financing can be one of the riskier types of commercial loan to opt for.
Benefits of Commercial Loans
- Easier to meet day-to-day operational requirements.
- Straightforward application processes
- No sharing of ownership or diluting of equity.
Debt Collection Services
Small businesses rely on commercial loans to grow and thrive. The key is finding and using the right type of finance for your business and being acutely aware of the repayments that must be made as per the loan agreement.
We always recommend working with a reputable lender and thoroughly carrying out your research ahead of signing on the dotted line.
It’s important to know why you need the loan, the advantages and disadvantages of all commercial loans, and your business’s financial health.
At Direct Route, we work with various businesses providing a range of debt collection services to reduce late payments and overdue invoices.
To learn more, call us today at 0330 229 1991.