It’s maybe easier than ever before to obtain different types of financing, whether for personal or business purposes. The advent of online lenders, brokers, and digital services offered by traditional finance institutions has given borrowers of all kinds the power to research and obtain financing options.

But not all creditors are created equal.

Commercial finance is a highly specialized industry, and commercial loans & lending institutions can determine the success (or failure) of a business venture or developing project. The roles and nuances of these options can be difficult to understand, but learning about them is crucial to the long-term success of your business.

First off, what exactly is commercial finance?

The idea of commercial finance might seem complicated, but it really isn’t. Commercial lending is all about financing businesses and entrepreneurs, and while the process and industry differs greatly from personal loans, the concept is generally the same.

If you have an established relationship, good credit, or a history of success that attracts aggressive investment, you have an easier time obtaining financing at or around prime rates and terms. If you don’t, you may be subject to more predatory lending practices and commercial loans (if you’re not careful).

Typically, the commercial finance industry centers around projects and ventures that require capital beyond the out-of-pocket means of the average business owner.

Obtaining Commercial Financing from a Bank or Credit Union

This might be the first option that a business considers when the need for commercial capital arises. Many of these institutions are established companies with plenty of online reviews and documentation about customer experiences, business practices, and financing options.

There’s also the benefit of working with an institution where you might already have a history, relationships, or other accounts.

One of the major drawbacks, however, is that these institutions are often highly inflexible. There are likely cut-and-dry commercial loan options that are determined at the corporate level, inaccessible by consumers or even the employees you’re likely working with to obtain your financing.

Another is the potential lack of expertise; truly, a jack of all trades but master of none situation. Banks offer all types of financing, and will expand into sectors that are potentially profitable. That means, however, that you’re probably not working with a team that has specialized experience working with middle-market and enterprise-level commercial lending.

Brokers

We talk a lot about the role of brokers in the context of equipment leasing in this post. Most of that information holds true from a general sense.

If you’re an enterprise that lacks the resources, time, or expertise to work directly with your creditor and has the capital to weather the extra costs of brokers, this might be a good option for you. You are, however, paying for that convenience in the forms of fees, extra rates, etc. You may also find yourself feeling siloed from your lending source, or lacking context later on when you’re working out the financials of your project.

Commercial Lending Companies

There are a lot of different types of these, some of them better than others. That could take up an entirely different post. There are a few things that set the good apart from the bad, however.

Single-source direct lending is one of these. VFI (that’s us) is one such company. That means that you’re not balancing different sources and accounts, and you’re not having multiple monthly payments stacking up.

Great companies should also offer some sort of flexibility to you. That is, your rates, terms, and amounts should take into account the kind of financing you need, your soft costs, and the other quirks of your project. Your team should not only be willing to accommodate these things, but able to do so.

This means being literate in the commercial finance industry and understanding how to foster a symbiotic relationship between the lender and the borrower, all while having the technical expertise to structure and execute the right commercial lending options.

We’re in this business because we know we offer a top-tier commercial finance option to consumers, and that we can compete with the many options that exist in our modern economy.

If you have questions about these concepts, or about the solutions we can offer, feel free to get in touch with us here.

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