Business Finance and Business Loans Versus
Residential 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.
Environmental requirements for business
finance will be a complex issue for numerous business investments. Environmental
issues involved in a business loan will primarily depend upon the commercial
lender as well as the type of business. More extensive requirements can
impact both the cost and timing for a commercial mortgage loan.
Tax returns and financial statements for
a business loan are likely to be a concern for all commercial borrowers.
Whereas residential mortgage financing is likely to involve only personal
tax returns, most business financing will include a review of business
tax returns as well. Business financial statements and personal financial
statements will be required for certain kinds of business opportunity financing
and commercial real estate financing.
Secondary financing will often be a means
of acquiring desired commercial loans. The use of seller financing or secondary
financing is a prudent business financing strategy to reduce capital requirements
for the borrower. Secondary financing will not be accepted by all commercial
lenders.
An unexpected requirement for many commercial
loans involves sourcing and seasoning of funds. When purchasing a business,
some lenders will require that borrowers document where the down payment
is coming from (sourcing) and how long the funds have been in that location
(seasoning). If a borrower cannot adequately provide this documentation,
the choice of commercial lenders will be more restricted.
Collateral and cross-collateralization
for business loans will be an insurmountable obstacle for some commercial
borrowers. Collateral requirements for business financing will depend on
many factors such as down payment, type of business, credit scores and
the type of financing needed. Cross-collateralization refers to lender
requirements involving personal collateral such as a home used as collateral
for a business loan.
Any requirement for a business plan when
obtaining commercial mortgages is likely to be expensive and time-consuming.
A business plan is not always required for a business loan, but when one
is required this will add significantly to the cost and length of the loan
process.
An increasing problem for commercial borrowers
seeking refinancing is an unreasonable limitation for getting cash out
of the new loan. Commercial lenders differ significantly regarding restrictions
imposed on the amount of cash out to the borrower when refinancing. Some
lenders will not permit any cash out whatsoever while others will limit
cash received by the borrower to a particular amount. The preferred approach
is to use a lender that will allow cash to be paid out up to an agreed
loan-to-value (frequently 75%).
It is important to to thoroughly analyze
business financing lockout penalties. A lockout penalty is much more severe
than a prepayment penalty in that such penalties can effectively prevent
a commercial borrower from selling or refinancing during a prescribed period
(often two to five years).
In addition to the issues noted above,
numerous other key business finance and real estate mortgage issues will
also be important to evaluate. Commercial mortgage requirements are very
different from residential financing requirements in the United States.
We have prepared several other business finance overviews addressing additional
factors that will be significant for most commercial borrowers. Separate
report topics include SBA loan refinancing, business opportunity financing,
stated income business loans and commercial appraisals..
Author-Bio: To find Commercial Business
Loans and unsecured business loans visit www.a2zbigloans.com |
