A Rose by Any Other Name
Sometimes in life, we get bamboozled, confused, put off or turned off by phrases, jargon, terminology and technical lingo that we don’t quite get. You know, the conversations we have with our (insert mechanic, IT specialist, doctor etc) that we nod along with, but fail to really comprehend. It’s like reading Shakespeare - we can understand it, but the language makes things difficult.
It can be the same for residential mortgage brokers, who have the knowledge base to work in the commercial lending and SME finance space but haven’t been introduced to the nuances of Commercial finance terminology. And when you look at these words and phrases, they are not too different to what you already use on a day-to-day basis.
Firstly, Commercial finance is an umbrella term for the different kinds of business loans designed to help businesses purchase assets, fund expansion, manage capital and maintain cash flow. Commercial loans in Australia consist of any type of finance that does not involve residential property.
Commercial finance is provided through a range of products like mortgages, overdrafts, equipment loans, lines of credit, plus many more.
An introduction to some of the commercial lending terms used and facilities available:
Business Overdraft
A short-term facility usually secured by commercial property, provided for businesses to fund cash flow gaps in their working capital or general cash flow requirements.
Commercial Line of Credit (LOC)
A long-term arrangement between a business and a lender, where the business can access funds up to an approved limit. The business may borrow all or part of the money at any time, but only owes interest and makes repayments on the amount used.
Commercial Property Loan
Commercial property loans involve the purchase or refinancing of established retail, industrial and multi-residential properties. This includes the subdivision, development, and construction of these types of properties.
Commercial Term Loan
A debt-based funding arrangement that a business can set up with a financial institution. The proceeds of commercial loans may be used to fund large capital expenditures and/or operations that a business may otherwise be unable to afford.
Commercial Bill Facility
Commercial Bills can be an option when your client needs a significant injection of cash above $500,000. A business borrows a single loan amount, which can be spread across a combination of components, such as variable rates and fixed rates. Often for purchasing franchises, established businesses, or starting a new business.
Short-term Private Mortgage
Unlike a mainstream mortgage product, applications can be assessed on their individual merits, as investors are not bound to follow strict rule-based underwriting standards.
Caveat Loan
For a business that needs funds and cannot afford to wait. A caveat loan can be the fastest business loan to arrange and settle, although interest rates can be high and it’s only suitable as a short-term loan.
2nd Mortgage Loan
A lien on a property which is subordinate to a more senior mortgage or loan.
Second mortgages are riskier for lenders and, generally, come with higher interest rates than first mortgages.
Asset & Equipment Lending
Asset finance is a type of business loan that can help your clients grow their businesses. It allows them to purchase the equipment (e.g., motor vehicles, farm equipment, industry-specific machinery) that is needed to conduct business. These loans are tailored toward self-employed clients, small business owners and contractors.
Cash-flow Financing
Cash flow financing is a form of financing in which a loan made to a business is backed by its expected cash flows. This differs from an asset-backed loan, where the collateral for the loan is based on the business’ assets.
Trade Finance
An increasingly important mechanism for handling risks and smoothing the flow of business transactions between nations is a set of financial tools collectively known as trade finance.
Development Finance
Development Finance is a form of funding that assists with building multiple residential or commercial properties. This form of funding is available through Australia’s big banks, non-banks and private lenders.
Trust Lending
If your clients are borrowing money to purchase a property, they may be able to take advantage of the many benefits offered by a trust loan. Borrowing through a trust offers tax advantages, asset protection and secure succession planning for the future.
In conjunction with industry experts, elevateB has developed self-paced, online, interactive, professional development programs designed to assist both new to industry and established finance/mortgage brokers to take their businesses to the next level.
To help you expand your services and offerings and work with business owners on their commercial lending requirements, we offer the short course – “Commercial and Business Lending”.
To get more information on this and other Finance Broker courses and programs, click here.
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