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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 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. Programs for Short-term Commercial Real Estate Financing 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. However there will be many commercial mortgage loan situations in which longer-term business financing is not appropriate for the business owner. In such circumstances it is important for a business owner to realize that there are viable short-term working capital management options. When to Consider a Short-Term Commercial Mortgage Business Loan If a business owner plans to sell or refinance their business within a few years, it is preferable to explore short-term business financing options. The best short-term business loan will have minimal prepayment penalties in comparison to terms commonly included with long-term commercial real estate financing. 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. Short-Term Commercial Mortgage Limitations 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%. Primary Candidates for a Short-Term Business Loan Warehouse, multi-family, office, mixed-use and retail business properties are the best possibilities for short-term business financing. Business owners should be comfortable with a time period of less than three years for a typical short-term business loan. Short-Term Commercial Mortgage Business Loan Lender Limitations 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. 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 Factoring and Credit Card Processing 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. 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. What these businesses do have in many cases is documented sales volume and documented credit card sales activity. It is this documented level of sales volume and credit card sales activity that becomes a financial asset to the business and its working capital management strategies. Business cash advances from $5,000 to $300,000 can usually be obtained based on a merchant's sales volume and future credit card sales. 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 are significant problems to be avoided with a merchant cash advance, and the choice of a funding source is critical to a business that needs a working capital cash advance. As with most complex business loan techniques, there will be only a handful of commercial financing sources to effectively implement and coordinate the credit card processing and credit card factoring. Copyright 1995-2007 AEX Commercial Financing Group and Stephen Bush. All Rights Reserved.
Article Source: http://www.financemanual.com
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