Explaining commercial finance

Commercial finance is a term that covers a multitude of business finance products which can include both short and long-term solutions. Here are some of the most common options available in greater detail.

Commercial loans

A commercial or business loan provides an agreement of funding between a company and a lender. It allows a business to fund major acquisitions such as plant machinery, office equipment, new premises, capital expenditure and much more.

The key benefits of commercial loans are:

• A quick solution to boost cashflow enabling the purchase of equipment, meeting business goals and maintaining payroll commitments.
• The application process is relatively straight forward and if handled through a finance broker they can manage on a business’s behalf.
• The loan enables the purchase of business assets which at the end of the term become fully owned by the company, boosting their equity levels.
• Take advantage of the differing interest rates available, both variable and fixed are the most common and a business can choose the most appropriate to their business needs.

Invoice finance

An invoice finance facility enables a business to gain immediate access to the value of an invoice as soon as it has been issued and not have to wait until the client has made payment. Also known as invoice factoring or invoice discounting, a lender will provide up to 90% of the invoice fee upfront and will then be reimbursed once the client pays the total invoice in full.

The key benefits of invoice finance are:

• Maintain a steady cash flow balance and have access to cash when you need it rather than having to wait for invoices to be paid.
• Full flexibility, if you need to pay onboarding costs or employ new temporary staff you can do this immediately without having a negative impact on your business.
• You keep control of your business; you are simply taking advantage of favourable payment terms.

Acquisition finance

When a business is looking to purchase another business one of the most beneficial lending facilities is acquisition finance. A business acquisition provides a well-established business with the ability to boost operational efficiency and capacity along with an increase in profit margins.

Some of the most popular options include:

• Equity acquisition: this is often deployed in industries that can be challenging and do not have consistent cash flow.
• Debt acquisition: this is the most common option when a business purchases another business, but both are kept as separate operational entities.
• Mezzanine finance: this is a combination of both debt and equity financing with a key advantage of the debt being tax deductible.
• Exit finance: this is the outright purchase of a business which brings new owners and shareholders.

If you have any questions or would like to find out more about any aspect of commercial finance, please call us on 01993 706403 or e-mail enquiries@ngifinance.co.uk.