What is a commercial finance broker?

Commercial finance brokers have long played a critical role in getting vital finance through to Britain’s hard-pressed firms, and never more so than in the aftermath of the credit crunch.

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What is a commercial finance broker?

When it comes to lending, a commercial finance broker is a cornerstone in the market, connecting business owners looking to secure funding and lenders hoping to issue new credit. For businesses looking for tailored financing options, a commercial finance broker will arrange everything from business loans to commercial mortgages and will take a commission— often from both parties—to complete the transaction.

Financing options

Over the past few years, the range of options to source capital for high-value expenditure has improved. Where before, you were limited to taking out a business loan (secured or unsecured) now you can avail of a wide range of different alternative financing options from invoice finance to commercial mortgages. In this short article, we will cover the above-mentioned areas of business finance offered by credit brokers.

What is invoice finance?

One of the primary loan types on offer through commercial finance brokers (NACFB) is invoice financing. And any commercial broker that is registered with the National Association of Commercial Finance Brokers (NACFB) will almost certainly be able to steer you in the direction of a lender who offers this service. The service involves invoice discounting and invoice factoring, and a broker, not a lender, will explain the main differences between invoice discounting and factoring so you can choose the type of borrowing that best fits your needs. 

There is also the option of using a lending platform. This is a good option to connect with the best lenders for your particular situation, rather than choosing a lender that offers terms and conditions and minimum standards that are sub-optimal for your specific borrowing needs. If you have many customers that often have slow payment cycles, you can get cash upfront, by offering an invoice finance company a small percentage of the final invoice amount. They will, of course, need to verify that the invoice amount and customers are legitimate. Many business owners choose invoice discounting during off-peak trading times to free up some cash for ad-hoc expenses and to supplement cash flow shortages.

Commercial mortgages

Sometimes called business mortgages, a commercial mortgage is often used by business owners looking to acquire a new property or land for their business. Often it is used by businesses that have outgrown their premises and need a new building. Businesses that are rich in cash, can purchase a building to avoid paying commercial rent, and can even sublease some of the building to other businesses.

The primary difference between a residential mortgage and a commercial mortgage is the value of the property is an order of magnitude higher. It’s basically any loan that is secured against a property, which is not your primary residence. A buy-to-let mortgage is a nice way for businesses to add a new revenue stream, but will necessitate a commercial mortgage. It might be worth reading our article about property development finance

A commercial broker will be able to advise on different lending options from invoice finance to commercial mortgages but will often have particular lenders that are favoured over others due to different commissions. There is also the option to use a lending platform to match with hundreds of 3rd party registered lenders and get a loan within 24 hours.

Always make sure that when looking for a source of funding you only engage the services of a lender that is authorised and regulated by the financial conduct authority. This protects all parties involved and is a welcome safety blanket in the commercial finance market. When searching for businesses on the FCA website even if you don’t know the company number, you can still search by company name or reference number. You can then narrow your search results by adding a location.

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