Commercial Finance Guide

Whether you’re looking to take on business opportunities, purchase machinery to increase output, or simply need to manage cash flow, there are a number of commercial finance options that can help.

We take you through some of the common types of commercial finance and tell you everything you need to know when looking for a business loan.

What is commercial finance?

Commercial finance is a broad term used to describe a diverse range of business lending options available from lenders. It includes various types of loans, lines of credit and overdraft facilities used by businesses for a range of different purposes. Commercial finance options can be short-term or long-term, depending on different business needs. 

What can commercial finance be used for?

Commercial finance can be used for a wide range of business purposes, including:

• Unlocking business equity that’s tied up in your equipment (through a sale and leaseback agreement).
• Buying the stock you need to grow your revenue and profit.
• Managing cash flow.
• Buying equipment, vehicles, commercial property or other business assets to grow your business.
• Purchasing property.
• Commercial fit-outs for your business premises.
• Property development (such as multi-residential building developments).
• Acquiring a business.
• Repaying tax debt.
• Refinancing to pay down debt.

When used strategically, commercial finance can help reduce tax liabilities, allow a business to scale, and increase profit.

Types of commercial finance

Different types of commercial finance include:

• Business loan (secured loan or unsecured business loans).
• Line of credit.
• Equipment finance.
• Trade finance.
• Cash flow lending.
• Private lending.

Let’s look at each of these options in turn in more detail.

Business loans

Business loans are where you borrow an approved amount of money and then make regular loan repayments over the term of the loan to repay the amount you borrow, plus interest and any fees and charges.

Business loans can be secured against property or unsecured.  The benefit of an unsecured loan is they are usually approved much faster than a loan secured by property — they can even be approved and settled the same day, in some instances.

Line of credit

A line of credit is an approved credit limit that can be accessed as needed. A business is approved for a maximum level of funding, and then they are free to draw down as much cash as they need, at any period, up to the maximum amount.

A revolving line of credit allows the business to borrow money, pay it back, and then re-borrow cash as needed at any time during the draw period. For example, if the credit limit is $50,000 and the business draws down $20,000, they still have $30,000 available to tap into. If they repay the $20,000 a week later, they are free to access up to the $50,000 when needed.

Like business loans, lines of credit can be secured or unsecured.

Equipment finance

Equipment or asset finance is a loan given to a business to purchase a wide range of different vehicles, equipment or machinery. Often, the purchased asset will be used as security for the loan (called a chattel mortgage).

Trade finance

Trade Finance is a line of credit used to pay for material supplies.  Trade Finance is often associated with an Import Line of Credit used to pay for supplies from overseas.  For an Import Line of Credit, the loan covers the time the goods are in transit and can be either repaid at the end of the term or in instalments across the term.  Additionally, a Trade Finance facility can benefit a business by covering the life of your product cycle.

Cash flow lending

Cash flow loans allow a business to borrow against its future cash flows. Invoice finance is an example of this which allows businesses to access up to 85% of their accounts receivable ledger.

With invoice finance, if you provide credit terms to your customers (for example, 30-day, 60-day or 90-day accounts), then you can access the funds for those invoices straight away rather than waiting for your customers to pay you.

Private lending

Private loans support businesses with flexible credit criteria.  Essentially an asset lend against property, loan types include first mortgages, second mortgages and caveat loans.  The utility and speed of private loans set them apart from commercial loans from banks; they can be used to complete property purchases, development finance, emergency bridging finance and for a range of other business needs. 

Business owners with bad credit can also be approved for private loans as there is usually no credit scoring.

Equity in commercial or residential property is often required to secure a private loan.

The private lending market is a rapidly growing sector of the Australian business finance market.

The pros and cons of commercial finance

When looking to access commercial finance, it’s important to weigh up the benefits against the costs.

Pros

• Helps your business to continue operating by smoothing out your cash flow.
• It can help you to avoid using your working capital for significant upfront asset purchases.
• Allows your business to scale and grow.
• Making consistent repayments can help your business to develop a good credit rating so it will be easier for you to borrow funds if necessary in the future.

Cons

• Commercial finance generates a level of debt for your business. However, this isn’t necessarily a bad thing. Taking on an optimal level of debt in a business can help improve the rate of return on investments through strategic leveraging. Debt financing can also be favourable over equity financing if the business owner would like to retain control over the business.
• Commercial finance requires you to pay interest on the funds you borrow. Again, this is not necessarily a bad thing. Using your own funds does not come with an interest expense, but it comes with an opportunity cost. Using commercial finance while investing your business funds into other areas of the business may provide a return much greater than the interest rates you pay on the commercial finance.

What is the alternative to commercial finance?

An alternative to debt finance is equity finance. Equity finance can be where an owner contributes funds to a business (which may not be an option), or they sell a stake in the business to raise more capital. Selling a stake in the business reduces the ownership share of existing owners and is therefore not an attractive option for owners who want to retain control of the business.

Where can you get commercial finance?

Commercial finance options are available from traditional lenders like banks as well as a growing number of non-traditional lenders. At darkhorsefinancial.com.au, our commercial finance experts analyse your business needs and identify a finance strategy that helps you maximise profit and reach your business goals. We then match you with the best lenders and products for your specific business needs ensuring to find a competitive interest rate.

With a range of different types of lenders, we walk you through a fast approval process, as well as help you access ‘low doc’ and ‘no doc’ finance options when needed.

Who can apply for commercial finance?

As long as you are running a business and have an Australian Business Number (ABN), you can apply for commercial finance through darkhorsefinancial.com.au.

We specialise in helping businesses with complex finance needs, including businesses with ATO tax debt and bad credit scores.

How can you apply for commercial finance?

You can apply for a free quote online for any of the following commercial finance options (for amounts from as little as $10,000 to as much as $50 million):

As you can see, there is a diverse range of commercial finance options available depending on business loan requirements. It’s important to get advice on the range of options available for your specific business circumstances and needs.

 We would love to be your strategic business finance guide! Please submit our quick and easy quote form for more info.