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Although long-term business loan options are frequently appropriate, there are several short-term working capital and commercial mortgage possibilities that will be much more effective for business owners in achieving successful commercial financing and credit card processing results. Short-term working capital business loan options are often overlooked because of an apparent preference for long-term business financing. Critical Short-Term Business Loan Options Possibly the two most important short-term business financing approaches are short-term credit card financing programs and commercial property loan programs. Although both business loan and commercial mortgage programs are applicable to most business owners, these strategies are often misunderstood and misused. Programs for Short-term Commercial Real Estate Financing A long-term business loan is appropriate for many businesses that own commercial property. Business properties should normally be financed with a combination of short-term and long-term funds. When a longer-term commercial mortgage is viable, it is preferable to secure long-term business financing, preferably for 30 years. 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 It is prudent to explore short-term business loan choices for business owners who want to refinance or sell the property within a short time frame. Appropriate short-term business financing will have more reasonable "lockout" fees and prepayment penalties than typically required with a long-term commercial real estate loan. 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. 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%. 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. Business Cash Advance and Credit Card Processing Programs 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. Retail and service businesses accepting credit cards can usually benefit from this business loan program. This credit card factoring strategy uses monthly sales volume and credit card receivables to secure a business cash advance. Credit Card Factoring and Credit Card Processing This working capital management strategy is also known as "credit card factoring". Many businesses have relied upon a working capital loan strategy called "receivables factoring" or "receivables financing" which allows them to sell their future receivables at a discount. Most small businesses cannot adequately document their receivables in order to qualify for this kind of working capital loan. Many other small businesses (such as restaurants, bars, retail stores and service businesses noted above) simply do not have such receivables to rely upon as a working capital management tool. 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. 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 There will usually be only a few business financing sources that are regularly successful at executing the credit card financing and credit card processing. There are key difficulties to avoid with a working capital cash advance, and selecting an effective funding source is essential to any merchant needing a merchant cash advance. Copyright 1995-2007 AEX Commercial Financing Group and Stephen Bush. All Rights Reserved.
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