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Commercial Mortgage Business Loan Options Versus Home Loans
More residential real estate investors are exploring commercial real estate and business loan alternatives as a result of the increasingly chaotic investment environment for residential financing. In these circumstances prospective commercial property owners, business investors and business owners should educate themselves about choices for the business opportunity financing and commercial loan climate that currently prevails throughout the United States.
More residential real estate investors are exploring commercial real estate and business loan alternatives as a result of the increasingly chaotic investment environment for residential financing. In these circumstances prospective commercial property owners, business investors and business owners should educate themselves about choices for the business opportunity financing and commercial loan climate that currently prevails throughout the United States.
There are many critical differences between residential real estate investing and commercial real estate investing. Of the approximately 25 key business finance differences, some key factors will be addressed in this business loan report and other business financing factors will be discussed in a separate article.
Stated Income Business Finance Possibilities
Stated income commercial loan programs will preclude the need for personal tax returns to qualify for a business loan. However the stated income commercial mortgage will not change documentation requirements involving income for the business being purchased. In contrast to residential mortgages, no doc (no documentation) loans are not possible for commercial financing.
Commercial Mortgage Down Payment
A down payment varying from 10% to 25% (sometimes higher) will normally be required to buy a business. These requirements can differ based on a number of issues including whether a business opportunity business loan is involved, credit scores, business experience of the borrower, type of business.
Business Finance Minimum and Maximum Amounts
It is very difficult to obtain a commercial mortgage less than $100,000. A normal maximum for a stated income business loan and SBA loan situations is $2 million. A number of other business finance programs are limited to $5 million.
Business Finance Interest Rates
Commercial mortgage rates are usually above residential financing and rates, and an average range of 8-12% is currently likely. Borrowers can choose between fixed and variable business finance rate options. Business financing involving a business opportunity (without real estate) is likely to include interest rates up to 3% higher than an equivalent commercial property loan.
Business Finance and SBA Loan - Personal Guarantors
Even though a business is held under corporate ownership, a personal guarantee from the principal owners is routinely required for a commercial mortgage or business loan. This also means that credit scores of the individual business owners will be used as one of the factors to qualify for a commercial loan. In general all individuals owning over 20% of a business will typically be required to personally guarantee a commercial loan.
Business Opportunity Financing - Business Finance Appraisal Requirements
Commercial real estate appraisals are much more expensive and complex than residential appraisals and typically take several weeks to complete. The basis for business loan and commercial mortgage value is primarily based on the income generated by the business rather than an analysis of comparable properties prevalent with residential mortgage loans.
What About Other Commercial Mortgage Differences?
The many differences between residential financing and business loan requirements cannot be described appropriately in an individual report. We have prepared separate business finance reports to discuss additional issues such as SBA loan refinancing, how to eliminate typical commercial loan problems, recall and balloon conditions for business financing, special purpose commercial properties and financing to buy a business opportunity.
Copyright 1995-2007 AEX Commercial Financing Group and Stephen Bush. All Rights Reserved.