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What Is Commercial Funding?

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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 14 August 2014
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Commercial funding refers to any type of loan offered by lenders to help an individual or business with some sort of financing. These loans are generally backed by some sort of collateral on the part of the borrower, which allows the lender to receive some sort of recompense if the loan is defaulted. The borrower receives commercial funding from a lender, and must eventually return that funding by paying back the loan along with interest at a predetermined rate. Such loans may be used by businesses that are just starting out, individuals looking to buy a home, or any entity that needs immediate funding it cannot provide itself.

Loans are a major part of the business world, and many financial transactions would be otherwise impossible without them. Capital is often in short supply at the outset of a business undertaking, and profits are often only realized after some time has passed. For those reasons, lenders like banks or other financial institutions, which have that kind of capital at their disposal, are in high demand. Commercial funding is a crucial element of many individual projects or business endeavors.

The basic transaction that underpins all commercial funding is a loan from one party to another. Lenders, which usually specialize in such deals and know how to evaluate their customers, will offer a loan of a specified amount to borrowers. Borrowers then use the funds for whatever undertaking required them, but must pay back the lenders in installments which also include interest.

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Although there are unsecured loans which require demanding interest payments from borrowers, most forms of commercial funding come via secured loans. In such cases, the borrower provides some asset it possesses as collateral to protect the lender against default. Should the borrower default on payment, the lender can claim those assets as collateral if the principal of the loan isn't recoverable.

There are many uses for this type of funding, all of which are dependent on the needs of the borrower. A mortgage, which allows an individual to buy a home even if he lacks the capital for anything other than a small down payment on the value of the home, is a common form of commercial lending. Businesses uses commercial loans to help get operations started, fund the rollout of a new product, or simply ride out difficult tough financial times. Credit cards may also be included in the realm of commercial funding, since they are essentially loans from credit card companies to consumers, who pay an interest rate to the credit card company with every purchase.

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