Different Methods of Commercial Finance

By | May 15, 2017

Once upon a time, the commercial finance sector was a niche of the market that was dominated by a select few and so the average business owner would invariably find that the range and quality of options available to them were extremely limited indeed. The commercial finance sector was primarily dominated by the commercial lenders, i.e. banks, venture capitalists and angel investors.

The problem with these types of lenders is that the terms and conditions that they impose on the money that they lend out to borrowers is oftentimes, extremely rigidly enforced not to mention restrictive. The business owner who borrowed money from them would find themselves in the unfortunate position of being forced to sell equity in their business, ensure that they sought the approval of the lenders before approving any decision, or be required to pay back the money with astronomical interest rates charged.

Unfortunately, by virtue of the fact that such arbitrary and unfair conditions formed the status quo for the business financing world, this meant that as much as they were unhappy with the terms on offer, business owners were forced to accept the conditions as there was no other alternative.

However, many business owners did not actually take the time or effort to conduct an appropriate level of due diligence into the process and as such then, they merely assumed that because the general sentiment was that they would be forced to be locked into unfair terms, there was little point. However, the simple truth of the matter is that when it comes to business financing, shopping around for the most competitive provider can quickly prove to be a very lucrative process indeed.

It is equally important to appreciate that the business owner does not succumb to the trap of assuming that all business financing methods are inherently wrong or usurious and must therefore be avoided outright as they can also provide benefits.

A loan is often decried within the business community, typically regarded as a necessary evil and not much else. However, a loan plays an important role in the expansion process of a business as it can help provide the company with the requisite working capital reserves to allow for further major developments of the business to take place.

In addition, if the business is in a position to ensure that it adheres to the terms of the repayment schedule specified by the lender scrupulously and to the letter, then the credit rating of the business will be significantly increased which in turn will allow for them to be able to secure further credit in the future and more easily.

Furthermore, the interest repaid on a business loan can also be treated as tax deductible, as it is an expense that has been wholly and entirely incurred in the execution of the course of business. Of course it is strongly recommended that the business owner who is considering taking out a loan consults a tax attorney to ensure that they are utilising the savings properly.