What is a Commercial Finance Company?
Commercial finance companies provide business financing services to organizations for various purposes, such as working capital or equipment purchases. They specialize in offering tailored financial solutions to meet specific business needs.
Commercial finance companies are also called alternative lenders, online lenders, non-bank lenders, or private business lenders. However, some commercial finance companies, such as merchant cash advance companies, aren’t technically lenders.
These companies differ from traditional financial institutions like banks by focusing solely on commercial lending rather than consumer banking services. While banks cater to individual customers’ savings and loans, commercial finance companies target businesses seeking specialized funding.
With roots tracing back to the early 20th century, commercial finance companies have evolved to become crucial players in the corporate finance landscape. Initially established to support industries during economic downturns, these entities have expanded their services to include various business finance products.
The history of commercial finance companies showcases their adaptability to changing market demands and ability to provide flexible financial solutions tailored to businesses’ unique requirements. Over time, these companies have become integral partners for enterprises looking to navigate the complex commercial finance world efficiently.
How do Commercial Finance Companies work?
Commercial finance companies provide funding to businesses through various financial products such as loans, lines of credit, and equipment financing. These companies assess a business’s creditworthiness and determine the funding they can provide based on factors like revenue, cash flow, and business history.
These options provide affordable financing that can help your business succeed. Loan funds can help sustain day-to-day operations and fuel business growth.
Once approved, the business receives the funds and repays the loan with interest over a specified period. Commercial finance companies are crucial in helping businesses access the capital they need to grow and thrive.
Types of Loans
Commercial finance companies provide a range of small business loans and alternative funding options to help businesses grow and thrive. Some of the loans they offer include:
Business Term Loans: Business term loans are a type of financing where a commercial finance company provides a lump sum of money to a business, which is then repaid over a set term with interest. These loans are typically used for large purchases, expansion projects, debt refinancing, or other long-term investments in the business.
Business Lines of Credit: Business lines of credit from a commercial finance company provide businesses with access to a revolving credit line that can be used for various expenses such as inventory purchases, payroll, or operating costs. This type of financing allows businesses to borrow funds up to a predetermined limit, repay the borrowed amount, and then borrow again as needed, providing flexibility and financial stability. Business lines of credit allow companies to access funds as needed while paying interest only on the amount drawn.
Equipment Financing: Equipment financing is a specific loan available for purchasing or repairing equipment. This type of financing allows companies to acquire the necessary assets without having to pay the total amount upfront, making it easier to manage cash flow and grow their operations.
Merchant Cash Advance: Merchant cash advances are a form of alternative funding where a business receives a lump sum payment in exchange for a percentage of future credit card sales. Businesses that need quick access to capital often use merchant cash advances when they have difficulty qualifying for traditional loans.
A/R Factoring: Accounts receivable factoring is a financial transaction where a company sells its accounts receivable to a third party at a discount. This allows the business to receive immediate cash flow instead of waiting for customers to pay their invoices.
Working Capital Loans: Working capital loans are designed for businesses that need short-term funding to stabilize cash flow. They provide businesses with the necessary funds to cover day-to-day operational expenses, such as payroll, inventory, and utilities. These loans are typically used to help businesses manage cash flow fluctuations and ensure smooth operations.
Asset-Based Lending: Asset-based lending is secured by the borrower’s assets, allowing businesses to increase cash flow based on collateral value. This type of commercial financing is ideal for companies with valuable receivables, equipment, or inventory. Inventory finance increases a company’s working capital by funding a percentage of the total cost of inventory on hand. Inventory finance can include custom financing options such as Scheduled Payment Programs and Pay as Sold arrangements. Commercial finance solutions help businesses optimize inventory and improve cash flow.
Invoice Financing: Invoice financing, also known as accounts receivable financing, allows businesses to unlock cash tied up in unpaid customer invoices. Accounts receivable financing is commonly used in industries such as staffing, manufacturing, and transportation. Lenders prefer accounts receivable over other assets due to their accessibility for conversion into cash. This solution helps businesses overcome cash flow gaps and reduces the need to wait 30 to 90 days for customer payments.
Requirements
To qualify for commercial finance company loans, businesses typically need to meet specific criteria set by the lender. These criteria may include factors such as business credit scores, revenue and profitability, time in business, industry type, and the purpose of the loan.
Lenders will also assess the business owner’s personal credit score and financial stability. Additionally, most commercial loans require collateral or a personal guarantee to secure the loan. Sometimes, the collateral is built into the loan, such as commercial real estate loans.
Eligibility for small business loans typically depends on the business’s income, ownership character, and operational location. To qualify for a small business loan, you usually need to have been in business for over 6 months and have a minimum credit score of 500.
Documentation
Providing necessary documentation is essential when applying for a commercial loan. Documents commonly required for a business loan application include business bank statements and a copy of your government-issued ID.
These statements help lenders assess the business’s financial health and determine its ability to repay the loan. Other required documents may include tax returns, financial statements, and business licenses. Providing accurate and up-to-date documentation is crucial in the loan application process.
Application Process
The loan approval process for commercial finance company loans can vary depending on the lender, but generally involves submitting financial documents, business plans, and other relevant information for evaluation. Businesses must typically have a sound purpose for financing to avoid accumulating excessive fees and interest.
A lender should disclose the annual percentage rate and payment schedule in the loan agreement. Businesses should carefully review the requirements and terms of the loan before applying to increase their chances of approval.
What are the Best Commercial Finance Companies?
Here are some of the leading alternative business finance provider options to consider.
Fundera
Fundera is an online marketplace that connects small business owners with various lenders to help them secure financing options. They offer a range of financial products, including business loans, lines of credit, and equipment financing. Fundera’s headquarters are in New York.
Fundera simplifies the loan application process by providing personalized recommendations based on the business owner’s needs and financial situation. With a user-friendly platform and access to multiple lenders, Fundera aims to help small businesses find the funding they need to grow and succeed.
Funding Circle
Funding Circle is a peer-to-peer lending platform that connects small businesses needing funding with investors looking to lend money for a return. Founded in 2010, the company has facilitated loans totaling billions of dollars to businesses in various industries. Funding Circle is a UK-based company, but its US headquarters are in Colorado.
Funding Circle offers competitive interest rates and a streamlined application process, making it an attractive option for borrowers and investors. The platform provides an alternative to traditional bank loans, allowing businesses to access capital quickly and efficiently.
OnDeck
OnDeck is a fintech company providing online lending services to small businesses. Founded in 2006, OnDeck uses technology to streamline the loan application process and provide quick access to funding. OnDeck is headquartered in New York with services available nationwide.
It offers term loans and lines of credit to help businesses grow and expand. OnDeck has served over 100,000 small businesses and provided billions of dollars in financing. Their focus on efficiency and customer service has made them a popular choice for entrepreneurs seeking funding.
Bluevine
Bluevine is a fintech company that offers small businesses online business banking and financing solutions. It offers lines of credit, invoice factoring, and term loans to help businesses manage their cash flow and grow. Bluevine’s headquarters are in New Jersey.
Bluevine’s application process is quick and easy, with decisions typically made within hours. Their focus on technology and customer service has made them a popular choice for small business owners looking for fast and flexible financing options.
SmartBiz
SmartBiz is a financial technology company that specializes in small business loans. They offer SBA loans with low interest rates and long repayment terms, making it easier for small businesses to access the funding they need. SmartBiz’s headquarters are in California.
SmartBiz streamlines the loan application process through its online platform, providing quick approvals and funding. Since its founding, SmartBiz has helped thousands of small businesses secure over $4 billion in loans.
Fundbox
Fundbox is a financial technology company that provides small businesses access to funding solutions. They offer lines of credit and invoice financing to help businesses manage their cash flow and grow. Fundbox’s headquarters are in California.
Fundbox uses advanced technology and data analytics to assess risk and provide quick funding decisions. Their platform is user-friendly and allows businesses to easily apply for funding online.
What are the benefits of Commercial Finance Companies?
Commercial finance companies offer flexible funding options, providing quick access to funds for efficient cash flow management. They ensure timely payments, affordability, and competitive interest rates, making them a preferred choice for businesses.
With a focus on delivering value and excellent customer service, these companies offer personalized assistance throughout the funding process, enhancing the overall experience for clients seeking financial solutions.
What are the drawbacks of Commercial Finance Companies?
Commercial finance companies may seem attractive with low rates, but hidden fees can inflate costs. Access to substantial capital may lead to excessive debt burdens and hinder growth. Stringent approval processes can cause delays in obtaining funds, impacting a business’s financial health.
While these companies offer financial solutions, it’s crucial to consider drawbacks like additional expenses, debt accumulation, and approval challenges before committing. Businesses must carefully evaluate these factors to make informed decisions about their financing needs.
Commercial Finance Company Pros & Cons
Pros:
- Quick access to funding for businesses.
- Flexible repayment terms.
- Specialized financial solutions tailored to business needs.
- Can help businesses with cash flow issues.
Cons:
- Higher interest rates compared to traditional bank loans.
- Additional fees and charges may apply.
- Potential for increased debt.
- It could damage credit if not managed properly.
How do I apply for a Commercial Loan?
You can apply for a commercial loan through our lender network by following these steps:
Step 1 – Apply online in a few minutes: Use our simple online application to submit a request for business funding. If you need any help along the way, give us a call, chat, or email.
Step 2 – Get expert advice on loan options: An expert, knowledgeable account executive will walk you through all the fine details and requirements. This is to ensure you have all the info you need.
Step 3 – Finalize your application and get funded: Once your funding has been approved and closed, the lender sends the funds to your account so you can start using them to grow your business.
Frequently Asked Questions
Here are the most common questions about the best commercial finance companies.
How do Commercial Finance Companies differ from traditional lenders?
Commercial finance companies differ from traditional lenders in various ways. Unlike bank lenders, commercial finance companies are alternative lenders that cater to the specific needs of borrowers. These private business lenders offer more flexibility regarding amounts and interest rates.
One key difference is that commercial finance companies are often more willing to work with particular borrowers who may not qualify for traditional bank loans. They provide tailored solutions to meet businesses’ unique needs.
Online business loans typically have faster approval times compared to traditional bank loans. This can be beneficial for businesses looking for fast access to funds.
Another distinction is that commercial finance companies may offer different financing options than traditional lenders. They might provide specialized services such as invoice factoring or equipment financing.
Do Commercial Finance Companies Provide SBA Loans?
Yes, several commercial finance companies—including many online lenders—can facilitate SBA (Small Business Administration) loans. While the SBA itself does not lend money directly to businesses, it works with approved lenders to back a portion of the loan, making it less risky for lenders to provide funding to small businesses that may not qualify for traditional financing.
SBA helps small businesses get funding by setting guidelines for loans and reducing lender risk. These loans are known for their low interest rates, long repayment terms, and relatively high borrowing amounts, making them an attractive option for business owners who qualify.
SBA loans can be used for a variety of business purposes, including long-term fixed assets and working capital. The most popular option is the 7(a) loan program, which offers flexible funding for various needs. SBA’s primary program for providing long-term financing is the 7(a) loan program.
7(a) Loans can be used to refinance existing debt, working capital, purchase inventory, buy out a partner, or purchase commercial real estate. Loan amounts can range from small microloans to multimillion-dollar packages, depending on the business’s needs and eligibility.
For businesses seeking faster approvals, the SBA Express Program offers a quicker path. The SBA Express Program provides small businesses with a streamlined method to obtain SBA-backed financing for loans and lines of credit up to $500,000. While interest rates and terms may vary slightly, the Express Program is a strong fit for entrepreneurs needing timely access to government-backed capital.
To qualify for SBA financing, borrowers must meet specific criteria. Businesses must meet SBA size standards to qualify for SBA loans. The business must be officially registered and operate legally to qualify for an SBA loan. The business must operate physically in the United States or its territories to be eligible for SBA loans. Furthermore, the requested loan must be unavailable on reasonable terms from non-government sources to qualify for an SBA loan.
Loans guaranteed by the SBA range from $500 to $5.5 million for most business purposes. However, some loan programs set restrictions on how funds can be used. For example, the 504 loan program is available for owner-occupied real estate and can be used for purchasing buildings, financing construction, or purchasing equipment.
Commercial finance companies that offer SBA loans typically guide borrowers through the application process and connect them with lending partners experienced in navigating SBA guidelines. These lenders can be especially helpful for businesses unfamiliar with the extensive documentation required or those seeking guidance on improving approval odds.
Is a Commercial Loan the same as a Business Loan?
Commercial loans are essentially the same as business loans, but are often used to describe different borrowing levels. In both cases, an enterprise borrows money for business purposes and repays the borrowed amount plus interest in installment payments.
However, commercial loans typically refer to more significant borrowing amounts for substantial capital investment for expenditure. Examples include commercial real estate loans or loans for other fixed assets, such as equipment. Some expansion or business acquisition loans would also fall under commercial loans.
Business loans typically refer to small business financing solutions to meet working capital needs or fill a cash flow gap. Some institutions base the distinction on the size of the firm. Large corporations would be considered commercial financing, while business loans meet the financing needs of small and medium-sized businesses.
Can I get a Loan from a Commercial Finance Company with Bad Credit?
One of the benefits of commercial finance companies is that they’re typically willing to work with small business owners who can’t qualify for bank loans, including borrowers with bad credit.
Bad credit business loans through our lender network offer the following features:
- Max funding amount: $1k – $5 million
- Factor rates: 1% – 6% p/mo
- Terms: 3 months – 5 years
- Funding speed: 1-3 business days
These loans provide access to much-needed funds for businesses with less-than-perfect credit scores. They can help businesses improve their credit by making consistent, on-time payments. Additionally, the best business loans for bad credit often have more flexible eligibility requirements than traditional bank loans, making them more accessible to a broader range of businesses.
However, it’s crucial to consider the drawbacks, such as higher interest rates, stricter repayment terms, and limited loan amounts. Lenders may also require collateral or personal guarantees to offset the risk of lending to a business with poor credit history. It’s essential for business owners to carefully consider these factors before pursuing a loan with bad credit.
Best Commercial Finance Companies – Final Thoughts
Choosing the best commercial finance company is crucial for the success of your business. By considering factors such as interest rates, terms, customer service, and reputation, you can make an informed decision that aligns with your financial goals.
Take the time to research and compare different companies to find the one that best suits your needs. Partnering with a reputable commercial finance company can provide the funding and support necessary for your business to thrive.
Contact us if you have more questions or want to apply for a small business loan. Our alternative financing experts can help you find the best funding options for your business needs.
