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Empowering Manufacturing Businesses: Guide to Commercial Finance Options 

Estimated Read Time: 5 Minutes

Pooja Jaiswal , 26 June, 2024

On average in 2022, 52% of small businesses experienced late payment” – Federation of Small Businesses.

In today’s competitive economy, businesses face ongoing challenges, including late customer payments and cash flow pressures. SMEs rely on loans not just for expansion but to manage immediate financial needs.

Here’s an interesting fact – A study by CFIT pointed out that “almost three-quarters of SMEs have experienced late payments from customers, and a third experience late payments at least monthly. Furthermore, 67% of SMEs report that their late payments were worth up to £50,000.

Commercial finance embraces various lending options designed to meet the diverse financial needs of manufacturers and other businesses, regardless of size or industry.

Before diving into some key types of commercial finance options for manufacturers, let’s first understand the basics:

What is Commercial Finance?

Commercial finance describes the function of lending various types of funding options to businesses. This includes long and short-term loans from banking institutions, organisations, and individuals. It also includes asset-based, term loan, and cash-flow-based loan structures.

Commercial finance is a way to meet all the specific needs of manufacturers. It helps companies meet their financial needs to reinvest, make payments, and seize opportunities to prosper in this cutthroat market.

Types of Commercial Finance

Finance OptionDescriptionKey Benefits
Equipment FinancingThis type of commercial finance option is the best option for those manufacturers that require a storefront or equipment to run their business. It is like car loans, where the vendor supplies the equipment, and the lender facilitates financing with convenient monthly payments.This financing option empowers manufacturers to acquire new plant or machinery equipment. Typically, the equipment itself serves as collateral.
Invoice FactoringInvoice factoring is more suitable for B2B businesses with large numbers of unpaid invoices. The lender uses the invoice as security against funding. In this type of funding option, the borrowers do not have to provide collateral, and the lenders do not have collateral or a personal guarantee.It allows manufacturers to get paid faster, as a large percentage of the invoice amount is paid as soon as it is raised. It improves cash flow by converting invoices into immediate funds and reduces the risk of bad debt.
Commercial Real Estate LoansCommercial Real Estate Loans or commercial mortgages are like residential mortgages except that they are limited to real estate ventures for businesses only. These loans are used to purchase, refinance, or renovate commercial properties, including office buildings, restaurants, storefronts, and warehouses.It enables the acquisition of real estate assets and longer repayment terms compared to other loans.
Inventory FinancingThis type of financing involves short-term loans or lines of credit secured by inventory.Supports seasonal inventory needs and helps by lowering the strain on the company’s cash flow and enabling bulk purchases at a discounted price.
Revenue-Based FinancingThis is a funding model where a business receives capital upfront in exchange for a percentage of its future revenues until a predetermined amount is repaid, typically with a cap on the total repayment amount. No additional collateral is required.This type of loan can usually be secured quickly as qualification rules are less intensive and credit scores are not so critical. Flexible repayments tied to business performance suit businesses with fluctuating cash flows.

Benefits of Commercial Finance

Improves cash flow

Commercial finance provides loans at the lowest interest rates of all options, making it easy for small and medium-scale businesses to meet their cash requirements while maintaining lower overhead costs.

Accessible without collateral

Some commercial financing options, especially short-term options, are available without collateral, which enables SMEs to raise and allocate the funds required for growth and development and to make essential payments.

Quick access to funds

Commercial loans allow easy access to funds and can also be used to cover significant initial expenses, simplifying the early stages of startups. The loans are long-term, often between 3 and 10 years, allowing you to pay the money back slowly as you work to increase business profits.

Maintaining complete business ownership

While commercial bank loans allow you to keep full ownership of your company, venture capital investments usually require you to hand over a portion of your business to the investors.

Challenges of Commercial Finance

Loads of Paperwork

In exchange for providing easy funding options for the borrowers, lenders ask for extensive paperwork, depending on the company’s payback capabilities. Some institutions also require a credit history and a brief presentation of business goals and objectives.

Collateral Requirements

If businesses fail to qualify for an unsecured loan, they may have to provide some collateral, such as a home or a car. In the event of failed payment, the lenders have the authority to seize the property.

Commercial Finance Options for Manufacturers by Nucleus

Nucleus Business Loans (NBL)

Nucleus provides various types of business loans, ranging from £5,000 to £2 million, depending on SMEs’ unique requirements. These loans have short-term and long-term financing options. Companies can also customise their loan terms from three months to six years to fit their needs and goals.

Types of NBL Finance

Nucleus Revenue-Based Loans (RBL):

RBL Loans cater to businesses with variable revenue streams, offering flexible repayments based on monthly turnover. Companies seeking to support growth and manage cash flow fluctuations can borrow up to 200% of their monthly revenue, with funding ranging from £3000 to £150,000. At least two years of trading history is required.

Repayment is through monthly instalments over three to twelve months, facilitating effective financial management for working capital, marketing, and equipment acquisition.

Summary

Commercial finance offers diverse opportunities for manufacturers, retailers or other businesses to secure funding tailored to their unique needs. From enhancing cash flow to enabling strategic investments, these options provide essential support in today’s competitive landscape. Take the next step in growing your business by exploring the various business loans with Pulse. Your journey to financial empowerment starts here.


BY Pooja Jaiswal

5 MIN

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