The Commercial Finance Companies You Need to Know
Commercial finance companies are non-bank lenders that provide small business loans. Commercial finance companies are also often referred to as private business lenders, though some commercial finance companies, like merchant cash advance companies, aren’t technically lenders.
Commercial finance companies can provide a wide array of business financing to businesses that don’t qualify for traditional bank loans. In fact, there are seven different forms of business financing, and the top commercial finance companies can each offer you one or more of these options.
Here are the best commercial financing companies of 2020:
- Funding Circle
- LoanBuilder, a PayPal Service
- Direct Capital
In this guide, we’ll break down all the details of these commercial financing companies so you can find the best fit for your business.
Commercial Finance: The Different Options Available
Before we dive headfirst into the list of the different commercial financing companies on the market, let’s set down some context.
Why types of business loans could you qualify for?
These days, there’s more than just one type of business loan. And it’s important to know what you’re looking for in a loan before you go out and pursue a business financing company that doesn’t provide the right solution for your business.
Here’s a quick overview of the various types of business loans on the market.
1. SBA Loans
SBA loans are considered the gold standard of small business financing.
The most popular type of SBA loan, the 7(a) loan, offers long terms (think 10 years), low rates (think sub 10%), and large amounts (up to $5 million).
Loans from the 7(a) program are very general financing products, so they’re perfect for just about any major business need.
However, these are some of the harder loans to qualify for—only borrowers with established businesses, strong revenues, and stellar personal credit tend to qualify.
2. Term Loans
Traditional term loans are probably the business loans you’re most familiar with: They’re lump-sum loans that are repaid over a set period of time with regular payments.
The larger term loans out there are really only offered by traditional banks, and they’re extremely difficult to qualify for.
However, non-bank, alternative commercial finance companies have entered the space to offer what we refer to as “medium-term loans.” These are like traditional bank loans, but slightly smaller (think up to $1 million, but averaging much less), shorter-term (up to five years), and slightly higher rates (ranging from 6.5% to 30%).
These loans are easier to qualify for than bank loans or SBA loans and are good for large business investments or expenses.
3. Short-Term Loans
Short-term loans are like their medium-term counterpart, but shorter.
Non-bank, online commercial finance companies offer these lump-sum loans over short terms (think three to 18 months), with smaller amounts (a maximum of $250,000), and higher rates (ranging from 10% to 90%).
You’ll get higher interest rates with a short-term loan product because these commercial financing companies offer much more accessible and fast financing than you can find with other lenders. Put simply, they work with riskier borrowers and charge higher interest rates because of it.
Short-term loans can be the infusion of capital you need to accomplish short-term projects, meet your working capital needs, or handle just about any other one-off expenses.
4. Business Lines of Credit
A business line of credit is a financing solution that gives you access to a pool of funds for your business to draw from whenever you need it. Much like a business credit card, you only pay interest on the funds you draw, and once you pay them back, your line of credit resets to its original amount.
Commercial finance companies offer both large and small lines of credit, with varying accessibility.
These loans are some of the best financing products out there for small business owners in part because they’re so flexible. In particular, business lines of credit work well for business owners needing to cover regular expenses, smooth out cash flow, or just to have as a safety net in their back pocket.
5. Invoice Financing
Invoice financing helps business owners who invoice their customers but need cash sooner than their invoices are being paid.
Invoice financing helps you get the cash you’re owed from your outstanding invoices. With invoice financing, you can be advanced typically up to 85% of the invoice amount. The commercial financing company will hold the remaining 15% in reserve, charging fees each week it takes your customer to pay up. Once they do pay, the commercial finance company gets repaid, and they return the reserve amount to you, less their fees.
If your business has outstanding invoices, this financing option could be a particularly good fit for you.
6. Equipment Financing
Equipment financing helps you afford the pricey equipment you need for your business, but can’t pay for upfront.
The commercial finance companies that provide equipment financing advance you up to 100% of the value of the equipment, which you’ll pay back over a set amount of time with interest. Once you’ve fully paid up, you own the equipment yourself.
Equipment financing is a good option for businesses that need new (or used) machinery, vehicles, office supplies, and so on. Additionally, the equipment itself acts as collateral.
7. Merchant Cash Advances
A short-term form of business funding, the merchant cash advance is a financing solution for merchants who process credit and debit card transactions.
In this type of financing, a merchant cash advance company advances you a lump sum loan. They’ll collect repayment by taking a fixed percentage of money from your daily credit and debit card sales. They’ll keep taking from your credit card sales until they’ve collected the amount they advanced you, plus interest.
While this merchant financing is the most accessible and fastest funding method on the market, it’s also the most expensive financing option out there.
Commercial Finance Companies: Who Are They?
When you’re searching for commercial finance companies, you’ll come across an array of alternative lenders. And different borrowers will align with different types of business finance companies depending on their qualifications.
Banks offer the term loans and lines of credit that you likely know well. Those loans are usually long-term, for large amounts, with very low rates. However, financing from traditional banks is extremely hard to qualify for. Just about 20% of business owners who apply to traditional banks actually get approved.
And because banks have such tight credit requirements for small business owners, alternative lenders—also commercial finance companies—have stepped in during the last 10 years to fund borrowers who don’t qualify for bank loans with the products we listed above.
These two types of commercial finance companies (banks versus alternative lenders) are different than one another in a few important ways.
Here are the most important differences to know.
Whereas banks typically only offer term loans and lines of credit, alternative lenders are much more flexible with the types of financing they offer.
Not only do these commercial finance companies offer term loans and lines of credit, but they also offer short-term loans, invoice financing, merchant cash advances, working capital loans, and so on.
Banks are notoriously tight with their credit. Alternative lenders, on the other hand, open their financing options up to a wide variety of small business owners.
As a result, business owners that previously couldn’t get approved can qualify for these alternative commercial finance companies.
Bank loans take a long time to apply to, and a long time to fund if you are approved. The process of applying could end up being a couple of months.
Alternative commercial finance companies, on the other hand, work a lot faster than banks. Some of the faster options can approve a loan the same day you apply, while even longer processes can fund in about 10 days.
The speed and accessibility of alternative lenders go hand in hand. Most alternative commercial finance companies don’t require as much paperwork on the borrower’s end as banks and SBA lenders do. This means you spend less time compiling a business loan application, and the lender spends less time reviewing a stack of paperwork.
Beyond this, online commercial finance companies also use technology on their end to underwrite loans faster and more efficiently.
The speed and accessibility difference between banks and commercial finance companies also lends itself to a difference in affordability.
Because alternative lenders work on such a fast time frame and are willing to work with less-qualified borrowers, they charge much higher interest rates than what you’d find at a bank.
Commercial Finance Companies by Financing Type
Now that we know the types of loans these commercial finance companies are offering, it only makes sense to go over where you can find this funding. It’s important to note that this list doesn’t include traditional banks.
If you’re a qualified borrower—meaning you have a stellar personal credit score, at least two years in business (although more is better), and strong business financials—then a bank will likely be the lender to work with.
However, if a bank isn’t a fit for you just yet, then it could make sense to pursue an alternative lender.
If that’s the case, here’s a list of the best commercial finance companies out there, organized by loan type.
Funding Circle is a term loan lender that offers a similar product to a bank loan. It’s a term loan ranging from $25,000 to $500,000 structured with monthly payments. Terms last from six months to five years and rates range from 4.99% to 22.99%.
Funding Circle is one of the most affordable commercial finance companies on the market, if you can qualify for them. You’ll need to meet the minimum requirements of having been in business for at least two years and have a minimum credit score of 620. However, they don’t set a hard and fast rule for annual revenue requirements, so businesses with low revenues might still be able to qualify.
Learn more about Funding Circle.
Fundation is another top-tier commercial finance company for term loans. They offer a loan product of up to $500,000, with terms of one to four years, and rates ranging from 8% to 30%.
Fundation is a great fit for more established businesses that are looking to grow their companies but need more working capital to do so. If you aren’t willing to wait for a medium-term loan from a bank, Fundation can give you a low-cost financing option within days.
Learn more about Fundation.
LoanBuilder, a PayPal Service
LoanBuilder, a PayPal Service, offers fast, accessible short-term loans.
To qualify for a LoanBuilder loan, borrowers need a minimum of nine months in business, at least $42,000 in annual revenue, and a credit score of at least 550. However, they’ll also take into account your annual revenue, number of employees, and credit activity. LoanBuilder determines eligibility on a case-by-case basis, so they don’t put a hard threshold on the minimum requirements.
LoanBuilder offers short-term loans ranging from $5,000 to $500,000, term lengths of 13 to 52 weeks, and flat fees ranging from 2.9% to 18.72%, some of the most competitive rates for short-term loans.
Direct Capital offers a short-term loan that borrowers pay back with fixed daily payments. Loans can go as high as $150,000, with terms from six to 18 months, and factor rates ranging from 1.06 to 1.19. If you get rates on the lower end of this spectrum, these will be pretty good for the short-term lending space.
If you’re looking for fast and easy-to-access funds, Direct Capital could be a good fit. In the best-case scenario, you could have the funds in your checking account the same day you apply.
Read more about Direct Capital.
Kabbage offers a shorter-term line of credit designed to provide working capital for business owners who need quick access to capital.
Kabbage lines of credit range from $2,000 to $250,000, with terms of either six, 12, or 18 months, once you draw from the line. Kabbage also charges a flat monthly fee of 1.5% to 10% on your remaining loan amount, depending on your creditworthiness.
Kabbage is one of the fastest and easiest lenders to work with, so if speed and accessibility are priorities for you, Kabbage could be a good fit. They don’t set a minimum credit score and can fund borrowers as quickly as the same day they apply, but they do want you to have a year in business and a $50,000 yearly revenue.
Read more about Kabbage.
OnDeck is another option for an accessible short-term line of credit. OnDeck offers lines of credit ranging from $6,000 to $100,000, with terms of six months and APRs between 11% and 63%.
Whereas Kabbage doesn’t have a minimum credit score requirement, OnDeck sets minimum threshold for personal credit at 600—paired with one year in business and at least $100,000 in annual revenue.
Read our full OnDeck review.
The Best Commercial Finance Companies for Invoice Financing
If invoice financing can help you meet your funding needs, here are the best invoice factoring companies to work with.
Fundbox is one of the most popular commercial finance companies offering cash advances for your outstanding invoices.
They’ll offer up to $100,000 in an advance for your invoice value, and will charge a factor fee of 0.5% each week that your invoice remains unpaid.
Fundbox is a great option for borrowers looking for an easy application process—they have one of the quickest and automated processes out there. Beyond their ease, Fundbox is great for younger businesses or business owners that might not have good credit and can’t get funds elsewhere. They do not check your credit score and only require three months in business.
Read more about Fundbox.
BlueVine is another popular invoice financing company. They’re an especially good option for business owners who have very large outstanding invoices, as they can offer an advance of up to $2.5 million.
Like Fundbox, BlueVine is another great option for business owners who need a fast and easy financing solution. You can complete the entire application process online within minutes and get the funding you need in as soon as a day.
Read more about BlueVine.
How to Choose the Right Lender for You
Now that you have the list of the top commercial finance companies out there, you can work on deciding which one to go with.
Once you know what types of financing you might qualify for, you can get a sense of which commercial finance companies will be realistic options for your business. From there you should choose the lender that will best meet your financing needs at the lowest cost possible.
Working with an online marketplace like Fundera can streamline the process so you can see all of your business loan options with just one application. Plus, Fundera’s loan specialists will walk you through the process and help you choose the best product for your business. The best part is—it’s free.