» Commercial Finance
Commercial finance is an avenue through which individuals and businesses secure funds for short and long term needs. Commercial finance companies offer various loan products, revolving lines of credit, growth capital, equipment leasing and asset financing.
Corporations may look towards commercial finance for working capital requirements, expanding their operations, starting new projects and repaying investors. This is because opportunities many need to be tapped quickly and there may not be enough time to access conventional financing.
Forms of Commercial Finance
The various forms of commercial finance include:
Asset-based loans: Short-term financing that requires companies to pledge assets as collateral. Asset-based loans are used by companies in tight credit situations or that are yet to prove their credit worthiness and how they would perform with long-term loans. Assets that may be pledged for such financing include property, equipment and finished inventory.
Inventory loan: Financing through inventory loans is also called flooring and involves keeping the equipment or stock financed through the loan as collateral. Inventory loans are often used for maintaining a stock of ready inventory and the maturity period is typically more than 30 days. Flooring is mostly used by distributors and resellers.
Bankruptcy reorganization financing: This is used by businesses facing bankruptcy and liquidation and is used for reorganizing. Such loans are usually secured by keeping the company’s equipment, inventory, accounts receivables and/or purchase order as collateral. Often the restructuring take place via an employee or management buyout.
Purchase order financing: Companies can use purchase orders from trustworthy customers and suppliers as collateral to obtain loans. This is a good financing option for companies that have invested in producing goods, but are yet to receive payments and are facing cash reserve issues.
Accounts receivable factoring: Businesses can sell unpaid invoices at a discount to receive funds for immediate use. This form of financing is typically used for meeting working capital needs.
Import and export financing: Export financing is offered to companies that have orders, backed by a letter of credit, from overseas customers. Import financing is offered to companies that have orders, backed by a letter of credit, from domestic customers. Up to 100% of the import-export order can be financed through this option.
Secured credit line financing: This option offers a fixed credit limit and requires the ¬existing accounts receivables and purchase orders to be placed as collateral. Companies need to pay interest only on the funds actually used, rather than the whole line of credit
Leading Commercial Finance Companies
Some of the leading companies that offer commercial finance are GE Commercial Finance Company and Lloyds TSB Commercial Finance. Of these, GE Commercial Finance, one of the six operating divisions of General Electric, is the largest, with branches in over 35 countries and assets worth more than US$200 billion.
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