Starting a business can be an expensive endeavor, and if you don’t have the capital you need on hand, you may be looking into commercial debt financing. A commercial loan is a debt-based arrangement between a financial institution and the business, and it is usually used to fund major expenses or operational costs.
What is commercial debt financing?
Starting and maintaining a business can get expensive quickly, so many business owners turn to commercial debt financing to fund operational costs and large purchases. Commercial debt financing is usually for short-term projects, but sometimes the funding can be extended to assist with long-term needs, such as payroll, supply purchases, and manufacturing costs.
Commercial loans usually require the business to put up collateral for the loan. Collateral can be equipment or property, but it must be something that the bank can seize if the borrower defaults on the loan. Two very common other types of collateral are future accounts receivable or the business’s commercial real estate mortgage.
Commercial loans aren’t the only way to fund a business. Other methods of commercial debt financing include commercial credit cards, lines of credit, and borrowing from friends and family. For initial business costs, business owners often use credit cards because they are easier to obtain than a bank loan and have low introductory interest rates. Lines of credit are similar to credit cards, but instead of being a one-time issue loan, the business can borrow against a line of credit whenever necessary. Finally, while this is not an official loan, taking a loan from friends or family to fund your business still counts as commercial debt.
If you are considering starting a small business, then you may be looking into methods of financing the endeavor. Commercial debt financing can help you start the company you want, even if you don’t have the capital on hand.