Business Loan and Working Capital Commercial Mortgage Choices

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Business Loan and Working Capital Commercial Mortgage Choices - By: Stephen Bush, Posted on: 2007-08-17

Even though longer-term business financing techniques might be appropriate for many circumstances, there are some important short-term business loan options that will be less costly in producing improved credit card financing and commercial mortgage results for business owners. Short-term commercial financing choices can be misunderstood because of a preference by many business owners for long-term working capital management programs.

Two Important Short-Term Business Financing Choices

The most critical short-term commercial financing techniques typically include short-term merchant cash advance and credit card processing programs and commercial real estate loan programs. Both working capital management approaches are frequently a source of confusion for business owners.

Programs for Short-term Commercial Real Estate Financing

A long-term business loan is appropriate for many businesses that own commercial property. Business properties should normally be financed with a combination of short-term and long-term funds. When a longer-term commercial mortgage is viable, it is preferable to secure long-term business financing, preferably for 30 years.

Nevertheless there will be business loan scenarios where long-term commercial real estate financing is not the best option. When this is the case, a business owner needs to realize that there are practical business financing choices.

When to Consider a Short-Term Commercial Mortgage Business Loan

It is prudent to explore short-term business loan choices for business owners who want to refinance or sell the property within a short time frame. Appropriate short-term business financing will have more reasonable "lockout" fees and prepayment penalties than typically required with a long-term commercial real estate loan.

The avoidance of business loan prepayment fees and lockout fees fees in some short-term business financing programs is an important benefit of these short-term commercial mortgage approaches. The absence of these potential fees could produce a savings of up to 20% or more if the business property is sold during the period which would have involved lockout fees in a longer-term commercial loan.

Limitations of a Short-Term Commercial Mortgage Business Loan

Although prepayment and lockout fees will typically be avoided with a short-term commercial mortgage loan, there are some trade-offs to be made if a business owner selects a shorter-term working capital loan. When short-term commercial mortgage loans are available, the interest rate will frequently be in the range of 11% to 13%, the loan-to-value will typically be under 70% and such a working capital loan will not be readily available for special purpose commercial properties.

Best Possibilities for a Short-Term Commercial Mortgage

The maximum time period for a short-term commercial mortgage is usually three years. The most likely candidates for a short-term business loan are mixed-use, retail, office, multi-family and warehouse properties.

Limited Lenders to Implement Short-Term Business Financing

There are numerous problems to avoid with short-term commercial mortgage programs, so selecting a lender is critical to business owners wanting a short-term business loan. Unfortunately there are very few lenders who are capable of executing short-term business financing successfully.

Credit Card Processing and Credit Card Financing

For any business that accepts credit cards as a method of payment, a business cash advance is a critical working capital management tool that is often overlooked. Even thriving businesses frequently need more working capital than they can borrow. One of the least-known working capital management strategies for successful businesses is potentially the single best working capital loan strategy for obtaining needed cash for growing their business: the use of a merchant cash advance or business cash advance program.

The most likely candidates to benefit from this working capital loan strategy are retail stores, service businesses, restaurants and bars. This highly-effective working capital management strategy uses an under-utilized business asset (credit card receivables) to obtain business cash advances based upon a merchant's sales volume.

Credit Card Processing and Credit Card Financing

This working capital management strategy is also known as "credit card factoring". Many businesses have relied upon a working capital loan strategy called "receivables factoring" or "receivables financing" which allows them to sell their future receivables at a discount.

Most small businesses cannot adequately document their receivables in order to qualify for this kind of working capital loan. Many other small businesses (such as restaurants, bars, retail stores and service businesses noted above) simply do not have such receivables to rely upon as a working capital management tool.

Many smaller businesses do have credit card sales activity and sales volume. The credit card sales activity becomes a financial resource for business financing. A working capital advance of $250,000 to $300,000 and higher is possible based on credit card sales and monthly sales volume.

A business financing merchant cash advance must usually be paid back in less than 12 months. For business owners that want to renew the working capital cash advance program, it is typically possible to get more working capital after payback of the initial advance.

Avoiding Problems with Credit Card Financing and Lender Limitations

There will usually be only a few business financing sources that are regularly successful at executing the credit card financing and credit card processing. There are key difficulties to avoid with a working capital cash advance, and selecting an effective funding source is essential to any merchant needing a merchant cash advance.

Copyright 1995-2007 AEX Commercial Financing Group and Stephen Bush. All Rights Reserved.

Article Source: http://higradesearch.com

Stephen Bush provides candid advice for commercial loan - commercial mortgage and business financing - business opportunity situations
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