Commercial Finance can be defined as a composite financial services consisting of personal finance as well as business finance services.
Finance companies are engaged in making loans to individuals or businesses; but unlike a bank, it does not receive deposits but obtains its financing from banks, financial institutions and other money market sources. Commercial finance can be called a secured business loan or asset-based lending or asset-based finance as the borrower in question can pledge any collateral or asset used in the conduct of the business.
Specifically, commercial finance includes asset-based loans, purchase order financing and credit card receipt advances. Working capital credit lines, import/export financing and inventory loans are also part commercial finance.
While asset-based loans entail converting company assets into working capital or giving in security in exchange for cash, purchase order financing requires loans on the written order to purchase goods at a stipulated price and at a predetermined delivery date. Inventory loans are a type of agreement between the borrower and the lender where the lender also provides retail financing for the product.
Commercial finance from finance companies is now a favorite option among the entrepreneurs seeking small business loans. These companies although charge higher interest rates than banks or credit unions, but are also likely to approve of any sort of request for a commercial finance.
Consumer finance companies working on the lines of commercial finance companies offer personal finance to individuals with poor credit ratings against his personal assets. Finance companies offer loans for purchase of equipment or inventory and it goes well with manufacturing enterprises. Insurance companies make commercial loans as a means of reinvesting their income by requiring the borrowers to have more assets than they forward as collateral. Various commercial finance companies are now known as commercial credit companies.
Some of the leading commercial finance companies in the world are the GE Commercial Finance Company, GMAC Commercial Finance and the Lloyds TSB Commercial Finance. These commercial finance companies offer financial services for small businesses, medium sized companies to large corporate houses. Of these, GE Commercial Finance, one of the six operating divisions of General Electric, is probably the largest with branches in over 35 countries across the world and assets worth $ US 232 billion. Formerly, a part of GE Capital, it offers financial services from revolving lines of credit to floor plan finance to equipment leasing of various forms, real estate services and car fleet management.
Some of the bodies of commercial finance companies of the USA are the Commercial Finance Association (CFA) and the National Association of Commercial Finance Brokers (NACFB). CFA was formed in 1992 and is the trade group of the asset-based financial services industry, with members which include asset-based lending arms of domestic and foreign commercial banks, both small and large independent finance companies, floor plan financing organization and financial subsidiary arms of major industrial corporations.
It should be noted that membership of the CFA is by organization and not on an individual basis. In case of the NAFCB, it was founded in 1992 in the wake of growing incidence of fraud in commercial finance lending practices. NAFCB conforms to the measurable standards of professional practices in sourcing commercial funding which was recognized in the Code of Practice and has been adopted by an increasing number of commercial finance brokers and lease finance brokers.