Business Loan and Working Capital Commercial Mortgage Choices

By Stephen Bush

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

Two of the most overlooked short-term working capital business loan strategies are short-term commercial mortgage loan programs and business cash advance programs in conjunction with credit card processing. Both of these business financing options are relevant for most business owners but are frequently misunderstood.

Programs for Short-term Commercial Real Estate Financing

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).

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 is Short-Term Business Financing Preferable?

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.

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.

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%.

Most Likely Short-Term Business Financing Candidates

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.

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.

Credit Card Processing and Credit Card Financing

Even successful business owners often require more business financing than they can obtain from a bank. For any business that accepts credit cards, working capital financing based on credit card processing is an effective but frequently-overlooked commercial financing tool. A relatively unknown commercial loan technique is probably the best business financing strategy to satisfy unusual cash requirements: using credit card processing to obtain a business cash advance.

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.

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.

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.

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.

Lender Problems and other Limitations with Credit Card Factoring

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.

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

Stephen Bush and AEX Commercial Financing publish the Working Capital Loan – Business Cash Advance Guide and free Commercial Mortgage – Business Loan Reports

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