Working Capital Business Loan And Business Cash Advance Options
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.
Short-Term Commercial Loan and Credit Card Processing 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.
Short-Term Commercial Mortgage Business Loan Programs
A long-term commercial mortgage is possible for most businesses that involve commercial property. Businesses should not normally be totally financed with short-term funds. When a longer-term commercial property loan is desired, a long-term commercial mortgage of at least 15-20 years is suggested.
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
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.
While we will not attempt to describe the technical aspects of commercial loan prepayment fees and lockout fees in this article, we will note that the absence of such fees in most short-term commercial mortgage loan programs is a very positive aspect of these short-term working capital management options. The lack of such penalty fees could easily translate to a savings of 10% to 30% or more if a business owner needs to sell their commercial property during the time period which would have triggered prepayment fees and lockout fees in a traditional longer-term commercial mortgage loan.
What are the Tradeoffs in a Shorter-Term Commercial Mortgage?
Substantial penalty fees will often be avoided with a short-term commercial real estate loan, but there are some important trade-offs to understand beforehand if a business owner wants a shorter-term commercial mortgage loan. When a short-term business loan is a possibility, the likely business financing will not include special purpose businesses such as funeral homes, the interest rate will frequently be in the range of 12% to 13% and the loan-to-value will typically less than 70%.
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
There will typically be a very small number of commercial lenders who are effective at implementing the short-term commercial mortgage loan strategy properly. There are also a number of problems to be avoided with short-term working capital management programs for a commercial mortgage loan, so choosing an appropriate provider is extremely important to any business owner considering a short-term commercial mortgage loan program.
Credit Card Processing and Credit Card Financing
An underutilized commercial financing strategy for businesses is possibly the best commercial loan strategy to secure cash for their business: a business cash advance using credit card processing. Credit card financing and credit card processing are effective business financing tools that are usually overlooked by any business accepting credit cards as a customer payment method.
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 Financing Based on Credit Card Processing Programs
This business financing technique is called "credit card financing". Some business owners might have used a business loan technique referred to as "receivables factoring" to sell future receivables at a discount and receive immediate cash.
Very few retail and service businesses can properly document their accounts receivable to acquire business financing. Smaller service businesses and retail stores are not likely to have receivables for a business loan.
Businesses accepting credit cards have substantiated credit card sales volume. The documented sales volume becomes an asset to commercial financing for the business. A merchant cash advance up to $300,000 is available based on business 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
As with any successful working capital management strategy, there will typically be only a small number of commercial lenders who are effective at implementing the working capital loan strategy properly. There are also a number of problems to be avoided with business cash advance programs, so choosing the appropriate provider of this working capital management service is extremely important to any business owner considering a business cash advance program.
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