Commercial Business Loans Explained

Commercial business loans could provide the funding you need to reach your targets, expand your organisation, and cover cash flow problems. There are many types of commercial business loans, each suited to different needs and situations. Read on to find out more.

Connor Campbell Published on 20 June 2022.
Commercial Business Loans Explained

Sometimes to reach your business goals, you will need a bit of financial assistance. And that help may come in the form of a commercial business loan.

Find out how commercial business loans work, what you could use them for, and how you can potentially get one with our quick explainer.

What is a commercial business loan and how do they work?

A commercial business loan, also known simply as a business loan or business finance, is a form of borrowing where a business secures funding from a lender. In this instance, lenders can range from traditional high street banks to online business loan providers.

If approved for a commercial business loan, you will then pay back the borrowed sum in instalments, with interest on top.

» MORE: How do business loans work?

What can you use a commercial business loan for?

There is a long list of reasons why you might consider taking out a commercial business loan. These may include:

  • helping to get your business off the ground
  • creating or exploring a new product or service
  • expanding into a new market
  • hiring more staff
  • purchasing or hiring key equipment
  • covering seasonal costs
  • buying a business premise
  • buying another business
  • helping with cash flow problems

While certain types of commercial finance will specify what you can use your funds for, most will leave that decision up to you.

» MORE: Why do businesses need finance?

Types of commercial business loans

Just as there are a range of reasons why you might take out a commercial business loan, there are also a number of ways to borrow. It is a good idea to thoroughly research what is on offer, to make sure you find the right form of financing for your specific situation.

Unsecured business loan

An unsecured commercial business loan may allow you to borrow money from a lender without needing to put up an asset as a security. You would still pay the sum borrowed back in instalments, with interest on top.

» COMPARE: Unsecured business loans

Secured business loan

A secured commercial business loan requires you to put up an asset as a security against your loan. Assets that can be used as security include commercial property, business equipment, machinery, and vehicles.

» COMPARE: Secured business loans

Start up loans

If you are a new business, you may be able to access specific start up funding. This includes the government-backed Start Up Loans scheme.

» COMPARE: Business start up loans

Cash flow loans

If your organisation needs to borrow money quickly – for example, if you need help covering your day-to-day running costs – then you may consider looking into a cash flow loan. This form of borrowing is typically based more on your future revenue and business performance, rather than your business credit score.

Government business loans

At any given time, there may be government business loans you could access in order to help fund your plans. These currently include regional programmes, such as the Northern Powerhouse Investment Fund, as well as specific offerings for new businesses, like the Start Up Loans scheme. There may be others available to meet your specific needs.

Other forms of commercial finance

On top of the aforementioned loan options, there are other forms of commercial finance that could be of assistance to your business. These include:

  • asset finance
  • invoice finance
  • merchant cash advances
  • commercial mortgages
  • business credit lines
  • bridging loans

You could also look into applying for a business grant. This is a form of funding that doesn’t need to be paid back.

» MORE: 17 different sources of business finance

How to get a commercial business loan

When it comes to getting a commercial business loan, each provider will have their own application process and lending conditions. However, in most instances, you will likely need to do a combination of the following:

  • Provide the required documentation. As well as monthly bank statements and your company’s registration details, this may also include a business plan and a cash flow forecast.
  • Prove your eligibility. This includes being over 18 years old and having your business based in the UK.
  • Pass the lender’s credit check. This may involve assessing both your personal and business credit score.

Before applying, you should thoroughly compare the commercial business loans currently available. This could help towards making sure you pick the right option for your needs.

» COMPARE: Business loans

Image source: Getty Images

About the author:

Connor is a writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and The Independent. Read more

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