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Business Cash Advance And Business Financing Choices
Short-term commercial loan alternatives are frequently forgotten because of misunderstandings about long-term commercial financing. Although long-term commercial mortgage options are often appropriate, there are practical short-term business financing choices that will be more workable for commercial borrowers in realizing profitable business loan outcomes.
Short-term commercial loan alternatives are frequently forgotten because of misunderstandings about long-term commercial financing. Although long-term commercial mortgage options are often appropriate, there are practical short-term business financing choices that will be more workable for commercial borrowers in realizing profitable business loan outcomes.
Two Important Short-Term Business Financing Choices
Possibly the two most important short-term business financing approaches are short-term credit card financing programs and commercial property loan programs. Although both business loan and commercial mortgage programs are applicable to most business owners, these strategies are often misunderstood and misused.
Short-Term Commercial Mortgage Business Loan Programs
It is important to note that long-term business financing has a very important place for any business that owns commercial property. Business properties should normally not be financed with short-term funds. When longer-term business financing is appropriate, it is essential to obtain a long-term commercial mortgage of at least 15-20 years (and longer is even better).
There will probably be many business financing circumstances for which a longer-term commercial mortgage is not desirable for the business. In these situations a business owner should understand that there are workable short-term business loan alternatives.
When to Consider a Short-Term Commercial Mortgage Business Loan
For business owners who expect to sell or refinance their commercial property within one to five years, it is especially advisable to explore short-term commercial mortgage loan programs. The most appropriate short-term working capital loan will have little or no prepayment penalties and “lockout” fees normally associated with longer-term commercial mortgage loans.
Even though we are not describing the details about commercial mortgage lockout fees and prepayment fees here, it is important to note that the absence of these costs in many short-term commercial loan programs is a favorable feature of shorter-term working capital business loan funding solutions. The avoidance of these potentially costly fees could result in a savings of as much as 25% or higher if a business owner sells their business during the time which would have included prepayment penalties in longer-term business financing.
What are the Tradeoffs in a Shorter-Term Commercial Mortgage?
There are some trade-offs that need to be understood if a business owner chooses shorter-term business financing even though prepayment fees will usually be avoided with a short-term business loan. When short-term commercial real estate financing is a realistic option, the loan-to-value will usually be no higher than 70%, the commercial mortgage will not be readily available for special purpose business properties such as golf courses and the interest rate will frequently be in the range of about 12%.
Best Possibilities for a Short-Term Commercial Mortgage
The most likely candidates for a short-term commercial mortgage loan are office, retail, multi-family, warehouse and mixed-use commercial properties. The time period typically covered by a short-term commercial real estate loan is six months to three years.
Fewer Lenders for a Short-Term Commercial Real Estate Loan
Business borrowers should be prepared for the shortage of lenders who can implement a short-term business loan effectively. There are many difficulties to be avoided with short-term business financing, and selecting a viable commercial lender is of critical importance when obtaining short-term commercial real estate financing.
Business Cash Advance and Credit Card Processing Programs
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.
Primary possibilities to take advantage of this business financing program are service and retail businesses. This credit card processing and credit card financing strategy uses credit card receivables to determine the amount of a merchant cash advance.
Credit Card Processing and Credit Card Financing
This commercial financing approach is referred to as “credit card receivables financing”. Some merchants have probably used a business financing approach known as “receivables financing” which generates cash for the business by selling their business receivables at a reduced price.
Many service and retail businesses cannot document business receivables to obtain a business loan. Businesses such as bars and restaurants do not typically have receivables to use for business financing.
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.
The commercial financing repayment requirement for a working capital cash advance is normally under 12 months. For merchants that need the business cash advance program for a longer time, the merchant cash advance can be renewed on a recurring basis.
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.