Securing commercial finance

Securing commercial finance

Securing Commercial Finance

Commercial financing is the process that businesses use to get loans from lenders and banks. These financing options can either be secured by assets or simply unsecured. Many businesses opt for commercial financing and use their real estate, equipment or supplies and receivables from invoices as collateral. Some small business may not be able to qualify for commercial financing from banks. 

Many businesses may find it difficult to sustain themselves financially. New businesses also often have trouble with start-up costs. With this, they may opt for commercial financing. Special lenders do have a lot of options in store for them. However, this depends on factors like property assessments. The properties used as collateral to secure loans may end up being confiscated when borrowers are not able to pay the debts on time. 

There are many assets that can be used to secure commercial financing. Business owners who opt for this financing method should understand the use of these assets and how they work.

• Property

This can be a residential or commercial property that is owned by those involved in the business. It can also be a property that the business is about to purchase if commercial financing is used to buy it. The lender will assess the property’s equity value. Then, they will look into its total value. In addition, the lender will scrutinize the borrower’s payment history for the property being collateralized if it has not been paid for outright. Finally, the lenders will take a look at the prospective borrower’s accounts receivable. 

• Equipment

Equipment may not be acceptable collateral for some commercial finance companies. This will depend on the amount of the loan being applied for and the equipment used for collateral. Equipment with a longer shelf life is more likely to get approved. Trucks and other vehicles may be used to secure commercial finance. 

Machine parts cannot be used as collateral. This is because a machine is not usable when it lacks a part. Trucks are usually the best assets to use as collateral because they can operate for a long time. 

Factories may put the equipment used for production up as collateral. However, supplies used for product manufacturing are often not qualified. They will run out once they have been used in production.

Borrowers should keep in mind that lenders generally look for equipment longevity. However, some equipment with short life spans can be used. Borrowers should ensure that they maintain their collateral while they are paying the debt. Otherwise, they will end up paying more when the equipment is lost. 

Most commercial lenders will take factory equipment as collateral as it is guaranteed to work for a long period of time. Its market value depreciates gradually, and it does not become outdated quickly. 

• Revenue

The lender will look into the revenue generated by the borrower regularly. Lenders want to make sure that borrowers are capable of paying off the debt. They will also take a closer look into the borrower’s receivables if the business has the potential to grow. They will base this on previous growth history. The amount left after all the accounts payable are subtracted will determine if the borrower qualifies for a loan.

How to Secure Commercial Finance 

Borrowers should be able to figure out the amount of money they need to achieve their goals. Paying back debt can be very difficult for a company. This is why borrowers should take loans seriously. Taking out a loan requires sound and smart decision making.  In addition, borrowers should determine how much money they need in advance. Commercial financing applications usually take longer than most borrowers expect. 

Business experts advise borrowers to reach out to potential lenders early. They should be able to build a relationship with them and provide necessary information about the business.  It is imperative that borrowers try to understand the lender’s perspective. A good relationship can create a win-win situation when financing needs arise.

Borrowers who want to secure commercial financing should remain transparent. They should be able to provide the information required up front. Lenders lose trust in companies easily. They may not be able to provide loans for borrowers when they find out that there are discrepancies after they have invested a lot of time and effort. Borrowers should also learn the financing structures utilized by their competitors. With this, they can improve discussions with the lender and find a favourable solution.

Moreover, borrowers should learn to face lenders with a compelling story. They should highlight the things that the business has accomplished. It is equally important that they present well-organized documents and understand everything written in them. 

The kind of lender used to secure commercial financing is also very important. A smart borrower should opt for lenders that specialize in providing financing options for their industry. It is best that borrowers understand the mindset of both the lender and the client. With this, they can interact more efficiently with the lender. They are able to anticipate and respect their decisions. They will be able to meet halfway and end up with a solution that gives both parties an advantage. The most important thing of all is effective communication. Borrowers should keep the lenders informed all the time. Borrowers should voice their concerns so that both parties can agree on desirable terms.

The Bottom Line

Borrowers should carefully understand all aspects of commercial finance. They should not jump into making decisions as they might jeopardize their business potential. Securing commercial finance is very easy when business owners know what they have and what they can do to make money with it. The most important thing they should bear in mind is that these loans will either make a business grow or pull it down. 

Revenue, equipment and property assets can be used as collateral. However, not all types of collateral may qualify. Borrowers should be aware of the limitations. Similarly, not all borrowers with these assets can obtain commercial financing. They should exert effort in building a good relationship with the lenders.

National Loan Guarantee Scheme

The National Loan Guarantee Scheme was launched by the Government on 20 March 2012.

It will assist SMEs to obtain cheaper borrowing. UK businesses with a turnover of up to £50m will be eligible to benefit from the scheme. The interest rate margin will have a 1% subsidy for the fist 5 years of the commercial mortgage.

Participating Lenders – Aldermore, Barclays, Santander, Lloyds and Royal Bank of Scotland have signed up. HSBC have not signed up.

Barclays are offering the interest saving up front as a cash back when the loan is drawn down.

Greenfield Finance have just completed a loan of £650k for a private hospital with Barclays. The client was thrilled to receive £28,250 cash back at completion.

Barclays are certainly pro-actively pushing the scheme, with little focus by the other banks. Greenfield finance sees this as a great incentive for our clients and have already drawn down 2 facilities with 4 others already qualifying for the cash back. we plan to maximise the benefit for all qualifying loans.

A Role for the Commercial Finance Broker

A Role for the Commercial Finance Broker…

We’ve seen significant changes since 2008 with the high street lenders since the “Credit Crunch”. Everyone says banks aren’t lending. Well actually they are, however, they are more selective than ever, only lending to the best propositions, the low risk ones. Businesses used to get funding as long as there was adequate security, generally bricks and mortar. Today, the business needs to demonstrate serviceability too. Banks want to see a business’s ability to make the loan instalments and to demonstrate the business can still make the instalments comfortably when interest rates start to rise.

This is where the Commercial Finance Broker can be a wealth of assistance. Firstly, it’s about presenting the proposition in it’s best light, in order to support it’s passage through the underwriting and credit approval process. Secondly, it’s about presenting the proposition to the the right person as not all Bank Relationship Managers have in depth knowledge of the different lending sectors or indeed how to get a positive underwriting decision. Thirdly it’s about going to the right lender, as each bank has it’s own underwriting policies, many of which differ from bank to bank, so it’s no good hiking it around the market.

So in summary, choose a Commercial Finance Broker carefully. You’ll benefit from a dedicated team who will be focussed on getting your application approved.

Visit us on www.greenfieldfinance.co.uk today so we can help find your commercial mortgage.