Finance is a broad field that deals with money matters which are related to shareholders, companies, public, individuals or even government. There are many ways by which an individual or corporation can raise money to attend their goals. Whether it is about building a house or starting a business, you can find the right financier for your needs. For small businesses this is the best time to find easy financing option.
Since there are many financial institutions that offer loans and borrowing options, there are many terms as well. The terms can be confusing to many people. For businesses, there are two types of financing options – corporate and commercial. Although, they both sound similar, they are different in many ways.
Take a look at corporate Vs commercial finance features:
Commercial Finance
It is the process of providing loans to different types of companies that are involved in money making efforts. It mostly deals with small companies where business managed by individuals with not so skilled employees, insufficient technology and manufacture goods and services in small scale. Commercial finance deals with small scale companies.
- Commercial finance does not offer home loans, private loans, vehicle loan etc.
- Commercial Finance does provide any type of loan that is extended to a business.
- Commercial financing is generally offered by a Commercial bank or other money lender.
- Commercial financing offer loans that are either secured by business assets or alternatively they can be unsecured, in special cases where the lender urgently need cash for the business to repay the facility.
- Commercial Finance provides loans to company on the behalf of an interest return on its commercial loan.
- Commercial Finance does not seek any interest in profits and share of the company that an investor would expect. The owner of the company can get finance and also they can retain their ownership.
- In case of mortgaging company’s equipment against loan, the Company still remain the legal owner of the equipment, unlike other financing firms.
Corporate Finance
It is the area of finance dealing with the funding of Corporations. Corporate finance deals with big companies that manufacture good and services in large scale. Corporate finance is all about helping corporate clients. It builds their business by providing funds and financial & strategic advice. These clients tend to be big corporate companies.
- It involves services of strategic advice on finance, value creation, financial analysis and strengthening the financial function.
- The basic concern of corporate finance is to maximize shareholder value through long and short term financial planning and execution of various strategies.
- Corporate Finance includes everything related to capital investment decisions to investment banking. It also involves all the long and short term decisions, which will benefit shareholders and also allowing the business itself to remain stable.
- It is objective oriented. It is used to achieve the objective of the company the main objectives are, to earn maximum profit.
Corporate Finance Vs Commercial Finance – Basic Difference
While there the features of each type of finance can different depending on the institution, there is a basic difference. As far as the practice goes, if the transaction amount is $200000, then it is a large business. Anything less than that amount it can be termed as mid-sized or small sized business. In other word, corporate finances are much bigger and involve more money than the commercial finance.
While there the features of each type of finance can different depending on the institution, there is a basic difference. As far as the practice goes, if the transaction amount is $200000, then it is a large business. Anything less than that amount it can be termed as mid-sized or small sized business. In other word, corporate finances are much bigger and involve more money than the commercial finance.
Choosing the right Finance Options
If you are a small start-up then commercial financing will be your option. For larger corporation looking to expand their business, corporate finance is the way to go. There are many banks that specialize in both type of financing. Depending on which category your business falls in, it will decide what type of finance to give you.
Additionally, you need to choose a bank that offers you the finance option you need. Consider the factors like long terms goals, current financial situations, interest rates, alternative financing options and other important things.
- It is important to understand the cost of financing as you have to pay back in the future. Consult a finance expert who can guide you on it.
- Business is never without risks. Financing for business involves risks and you need to fully understand the risk associated with financing especially debt financing.
- Flexible repayment is one of the important considerations for the business. Business can face problems and serious dearth of cash and flexible repayment system can be an effective option.
The Bottom-Line
When it comes to corporate finance Vs commercial finance, both has their respective share in the growth of world economy as both are very integral part of World Economy. Understanding the relevance and function of each type of finance option will help you choose the correct opportunity.
