Commercial financing, or asset based lending, is a type of secured business loan. In other words, the loan is secured by the bank with the borrower's collateral; in this case, assets used in the operation of the business. The difference between the value of the collateral and the amount of the loan is called the reserve.

Requirements for Commercial Financing

The only way to secure commercial financing is by having assets, period. Without them, banks or other lenders will have nothing to seize in the event that the loan defaults. These assets may include real estate, inventory, business equipment, or accounts receivable, and since these businesses are in manufacturing or other large-scale industries, their value is great.

Since the borrower has plenty of assets to back the loan, the risk assumed by the lender is decreased, and the loan is granted. This is the basis of commercial financing, as well as all secured loans: failure to repay the loan means the assets may be forfeited. Because you can use almost any kind of unencumbered business-related asset as collateral, you can secure very large loans, into the hundreds of millions.

The specific requirements for each lending institution vary, as well as their rates and repayment schedules. As is the case with all large-scale financing, shop wisely and ask questions. Hidden upfront points or closing costs on a large scale can translate into millions of unexpected dollars.