Commercial finance comes in various forms to assist with a host of business-related expenses. Here Lakeside Financial Adviser James Foster looks at the main types of commercial loans and highlights the importance of working with a specialist broker to find the most suitable option.

What is a commercial loan, and why might a business require one?

J: A commercial loan is any finance request that a business owner might have to assist with the running or growth of their company. It can be used for a whole host of business-related expenses, from buying new premises and equipment to invoice financing to help boost cash flow.

What are the main types of commercial loans available, and what risks do they come with?

J: Secured loans - These are charged against an asset, such as a property, so it’s important to remember that the asset could be lost if you struggle to keep up with the loan repayments.

Unsecured loans - These are generally deemed a less risky option, but for that reason, they come at a higher expense in terms of the interest charged.

Bridging loans - This provides a way of borrowing money in the short term, but you pay for its convenience and flexibility in the form of higher interest rates and a range of fees.

Commercial mortgages - These work the same way as regular mortgages, with providers lending up to around 70% of the property value, secured on a first charge basis. Again, this means the property would be at risk if the business fell into financial struggles and could not make the loan repayments.

Due to the scope of commercial loans available, we advise working with a specialist broker in this area, who will be able to look for the most suitable provider for your business and its needs.

What factors can affect the interest rates of commercial mortgages?

J: The factors impacting commercial mortgage rates differ from residential mortgages. The interest rate and loan amount will depend on how risky a provider deems your business and industry sector. They’ll want to see three years of financial trading accounts, plus they’ll look at how long you’ve been in business, how experienced you are in your industry, and how well the sector is performing in the wider economy. Finally, they’ll take into consideration the type of property, its location, and condition.

What key considerations would you advise clients to think about when it comes to getting the most suitable commercial loan option for their business, and how can Lakeside assist?

J: Working with a specialist in this area is key to securing the best outcome. Therefore, we’ll put you in touch with a commercial broker partner who can assess your business and its financial needs and advise accordingly to help match you with the most suitable lender.

 

For further information on commercial loans, please contact: admin@lakesidefs.co.uk

First published on October 19th, 2022

The information provided above is believed to be correct at the time of publication and is provided for information purposes only, it does not constitute advice. Any reference to interest rates or growth rates are examples only and are for illustrative purposes only. You should seek independent financial advice before making any decisions about your finances and financial products. We accept no liability for loss as a result of any action taken based on the information on this page where appropriate independent financial advice is not taken from Lakeside FS Ltd.