How to Choose the Right Commercial Finance Solution

Craig Jiggins, Director at TBP – Trusted Business Partner, talks about how to choose the right commercial finance solution for your business. He takes you through the potential options along with the pros and cons of each.

Securing the right commercial finance solution is vital for the growth, stability and long-term success of any business. There are several options available to businesses, from the traditional bank loans to a myriad of others which could give more flexibility and match your businesses requirements when you need it.

Understanding Your Business Needs

It is important to understand what exactly your business funding requirements are in the short, medium and long term. 

Whilst a business loan will help you on day one, it may not be the best option if you have longer term, and ongoing cash flow needs. Therefore, it is important to consider the below.

• Cash flow analysis – Understand your cash flow position. Do you expect a short-term cash flow shortfall, or will there be a number of pressure points that need to be covered throughout the year. Is the business seasonal, and what are your growth plans for the year, including investment in assets or purchasing a commercial property for example. 
• Growth projections – It is vital to outline where you see the business in the future. A set of realistic projections gives you a better insight of where you expect the business to be and will include the cost of aspired growth (staff, equipment etc). 
• Outstanding debt – Review your existing debts and repayment schedules and decide which of these need to be reviewed at the same time as your current lending requirement. You may consider refinancing existing debt at the same time to ensure your cash flow is not affected by further monthly repayments.
  

By clearly defining your needs, you can narrow down financing options that align with your business goals.

Exploring Financing Options

Understanding the various commercial finance solutions available is crucial. Here’s an overview of common options:

1. Commercial Property Loans

If you are purchasing a business premises to trade from or rent out, a standard commercial mortgage is the usual way to go. The lending is secured against the business property, and a repayment schedule over an agreed amount of time is agreed. Usually, you can borrow between 70/75% of the total purchase price

Pros

• Agreed monthly costs (fixed or variable rates available)
• Potentially lower interest rates
  

Cons:

• Process is time consuming – Expect a standard commercial mortgage process to take around 12 weeks (Application, independent valuation and legal process means it can take longer)
• Customer contribution is usually 25/30% of the total purchase price
  

2. Asset Finance

Asset finance allows businesses to acquire equipment or vehicles by spreading the cost over time. This includes leasing or hire purchase agreements.

Pros:

• Preserves working capital
• Flexible repayment terms
  

Cons:

• Total repayment may exceed the asset’s value
  

3. Invoice Finance

Invoice financing enables businesses to borrow against outstanding invoices, improving cash flow without waiting for customer payments. This facility is suited to businesses who trade directly with other businesses, and invoice them directly.

Pros:

• Supports business cash flow when payment terms are not immediately
• Limits can grow alongside the business’ growth. If turnover increases, the invoice finance line can usually grow in line with this.
  

Cons:

• Not suitable for business to customer payments

4. Trade Finance

Trade finance supports businesses engaged in international trade, covering costs like purchasing inventory or managing supplier payments.

Pros:

• Supports with currency fluctuations, tie in the rate to ensure your margins remain in line
• with expectations
• Like invoice finance, the limits can grow in line with the business’ growth
  

Cons:

• Initial training and understanding to use the limits can be time consuming
  

It is important to review all options that are available to you, and ensure they fit your business plans and aspirations for now, and in the future.

Selecting the right commercial finance solution is a strategic decision that can significantly impact your business’s trajectory. By thoroughly assessing your needs, understanding available options, and partnering with experienced, ethical professionals like Trusted Business Partner, you position your business for sustainable growth and success.

Looking for a finance partner you can trust?

TBP is FCA regulated, NACFB registered, and led by Chartered Institute of Bankers professionals with over 15 years of experience.

Fast approvals, ethical practices, and tailored service – discover how TBP can support your business growth.

Get in touch with the team today on 0191 406 4555 or email Craig directly on craig@tbp.co.uk to discuss potential funding options available to you.

Note: This article is for informational purposes only and does not constitute financial advice. Always consult with a qualified financial advisor before making financing decisions.