Securing the right amount of money at the right time can seriously make or break your business. That’s why it is essential to make sure you choose the best type of commercial loan for your needs.
Whether you’d like a loan for leasehold and goodwill purchases, essential or speculative business expansion or working capital needs, there is a commercial loan out there for you that best fits your goals. In this piece, the experts at Hilton Smythe Finance break down what commercial loans are, the different types, how they work and what purposes they are best suited for.
Commercial loans, explained
A commercial loan, also known as a business loan, is very similar to a personal loan, except a commercial loan is used for business purposes. They are very common and an essential for many businesses looking to expand. They are one of the quickest and easiest ways to access commercial finance and are readily available at many high street banks and independent lenders.
Secured business loan
The first type of commercial loan is a secured business loan. Also known as asset-based lending, these loans use assets owned by the business as a form of security. This could be the building the company is based in, company cars, equipment, or furniture. If a business cannot pay the funds back for whatever reason, these assets will be used instead.
Unsecured business loan
In contrast to secured business loans, unsecured loans do not use assets owned by the business as security – perhaps you are a startup who does not yet own any assets, or you simply want to avoid using your assets. Unsecured loans are flexible and a fast way of gaining the money you need.
Start Up business loan
This loan helps to get budding entrepreneurs off the ground with their new business. These are most typically given in the first two years of trading, which is arguably the most critical time to get finances right and ensure you are set up for growth and scaling. The loans can be used for purchasing equipment, initial stock, securing cash flow, marketing, company vehicles, etc.
Government schemes can typically offer you up to £25k to get you started. If you think you will need more than this, then financial brokers can help you to look at lenders and banks who will offer more, but some form of security is required for this amount of money.
Commercial bridge loan
These are typically used as a ‘bridge’ between other forms of funding and are perhaps the quickest and easiest way to access cash out of all the types of commercial loans. They are most commonly used for purchases that need to be completed within a small time frame, e.g. 28 days. You can typically apply for them and have the money in your bank account within the space of 2-3 weeks.
One point to note is that they commonly have higher interest rates compared to the other types of loans, so although it is an attractive option for those requiring funds quickly, other forms of loans could actually be better for you in the long run.
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