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How Does Commercial Finance Work?

Carl Shave
Carl Shave
December 13, 2017

Commercial finance is the catchall term for a huge range of different finance products designed specifically for businesses. In essence, commercial finance allows businesses of every size to achieve their goals by investing in assets, taking on new staff and keeping a healthy level of cashflow.

What are the Different Types of Commercial Finance?

There are many different types of commercial finance available to meet the specific needs of businesses at every stage in their lifecycle. Many commercial finance products are similar to the products available for private individuals. Commercial mortgages are structured in very much the same way as homeowner loans, while business loans and personal loans are the same products packaged for different customers. However, there are also a number of commercial finance options that are unique to the business world.

Just a few of the commercial finance options include:

Short Term

  • Overdrafts
  • Business credit cards
  • Trade credit
  • Invoice factoring
  • Invoice discounting

Medium Term

  • Bridging finance
  • Crowdfunding
  • Peer-to-peer lending
  • Equipment leasing

Long Term

  • Commercial mortgages
  • Business loans
  • Asset-based lending

What Type of Commercial Finance is Right for You?

Funding comes in all shapes and sizes, so one of the first and most difficult decisions you’ll have to make is to decide which option is right for you. This will depend on many different factors, such as:

  • The reason for the finance
  • The sector you operate in
  • Your risk profile
  • The amount of money you need
  • The term
  • Your asset base
  • The size of your business

Who Can Apply for Commercial Finance?

There are commercial finance options for every type of business, from sole traders to global organisations. Anyone who owns a business can apply for business finance, but there are some types of finance which may not be well suited to you.

Debt vs. Equity Financing: Which is Right for You?

There are two basic types of commercial funding available to UK businesses: debt and equity funding. It is your/your adviser’s job to determine the most suitable type of finance to you.

Debt financing usually takes the form of a loan. This can come from a bank or a commercial finance company. Debt finance is a type of funding that you have to pay back, usually with interest, and it accounts for the majority of the commercial finance options available, such as credit cards, overdrafts, asset-based lending and bridging finance amongst others.

Equity financing is a type of funding that comes from an individual who invests in your company in return for a share in the ownership of the business. Equity financing can come from a range of different sources, such as friends and family, or private investors. There are also institutional investors, called venture capitalists, who invest in high-growth businesses on behalf of wealthy individuals.

Generally speaking, debt finance is a better option for the majority of smaller businesses because not only will you retain full control of the company, but you will also keep 100 percent of the profits. However, the best option for your business will depend on your current needs and future plans, and while debt financing might be the better option for most, it might not be right for you.

How Can We Help?

A huge range of finance options exist for growing businesses, so it’s always advisable to seek a little expert help. Having numerous contacts with experienced commercial finance brokers, we have relationships with a leading network of advisers who cannot just consider the high street names, but also specialist lenders that can often offer better options.

Our contacts use their knowledge and expertise of the commercial finance sector to match your requirements to not only the most suitable finance type, but also the most appropriate lender. For more information, please get in touch with one of our team today.

Need to Look at Your Finance Options?


Get in touch with your local Mortgage Centres office and speak to one of our experienced advisers. They will be more than happy to hear about what you need and refer to you to one of our many expert contacts. Commercial finance doesn’t have to be complicated. Let us do the work for you.

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