General Business and Finance Blog

The early process of reviewing business financing alternatives is likely to be confusing for investors most familiar with residential financing requirements. The outcome should be less stressful and more successful by analyzing this article as well as related commercial mortgage and business opportunity financing articles.

There are many critical differences between residential real estate investing and commercial real estate investing. There are over 25 business financing differences, and they will not all be addressed in this business finance article.

With the increasingly chaotic investment climate for residential financing in the United States, more residential real estate investors are exploring commercial real estate and business finance opportunities. It is important for prospective commercial property owners, business owners and business investors to educate themselves about options for the business loan and commercial mortgage environment they will be facing.

Personal Guarantors for Business Opportunity Financing and Commercial Loan -

Even though a business is held under corporate ownership, a personal guarantee from the principal owners is routinely required for a commercial mortgage or business loan. This also means that credit scores of the individual business owners will be used as one of the factors to qualify for a commercial loan. Typically a personal guarantee for a commercial loan is required for owners with over a 20% ownership interest.

Down Payment Requirements for Business Financing -

To purchase a business will typically require a business loan down payment varying from 10% to 25% (more in some cases). The type of business, credit scores and business experience will have an impact on the amount required for a down payment.

Stated Income Business Finance Possibilities -

Stated income business loan options will eliminate the need for a borrower to provide personal tax returns. However the stated income business finance approach will not eliminate the need to document income for the business being purchased or refinanced. Unlike residential financing, no documentation (no doc) loans are not available for a commercial mortgage.

Commercial Mortgage and Business Opportunity Financing: Size Limitations -

It is very difficult to obtain a commercial mortgage less than $100,000. A normal maximum for a stated income business loan and SBA loan situations is $2 million. A number of other business finance programs are limited to $5 million.

Appraisals for a Commercial Mortgage or Business Opportunity Financing -

Commercial real estate appraisals are much more expensive and complex than residential appraisals and typically take several weeks to complete. Commercial mortgage and business loan value is based primarily on income rather than comparison with other properties that is so common with residential financing.

Business Financing Interest Rates -

Interest rates for a business loan are generally higher than residential financing and rates up to 13% and even higher are possible. Investors will find both variable and fixed interest rates available from many commercial mortgage sources. Business opportunity financing typically has interest rates 1-3% higher than a comparable commercial real estate loan situation.

Other Important Business Finance Differences -

As noted previously, there are too many differences between residential financing and business finance situations to describe adequately in one article. Some of the critical issues discussed in separate reports are how to avoid common business loan problems, SBA loan financing, balloon and recall provisions for a commercial mortgage, business opportunity financing and special purpose commercial properties.

This real estate and business financing article discusses a concept which is referred to here as “Thinking Outside the Bank”. It is meant to be a variation of the well-known “thinking outside the box”. Despite the prominence of traditional banks, they are not the only viable source which should be considered for a commercial mortgage or commercial loan. There are many reasons why a commercial borrower might not go to a traditional bank for a commercial real estate loan or other business finance circumstances.
Business borrowers have more commercial mortgage and commercial loan alternatives than they realize. As noted above, I refer to these business financing alternatives as “Thinking Outside the Bank” because a typical commercial borrower probably believes that a bank is the best source for a business loan in business investing situations. Non-traditional business lenders are usually viewed as having the competitive edge for many common commercial financing and commercial real estate investment property financing scenarios.
In some cases a traditional bank will offer to provide a business loan but will attach excessively stringent terms and covenants. In other cases a traditional bank will decline the commercial mortgage outright, perhaps because they do not even provide business financing to the commercial borrower’s particular industry. In either case, the commercial borrower is likely to benefit by “Thinking Outside the Bank” for their business investing efforts.
Commercial loan borrowers might feel that a bank is their most likely source for business financing. However, since traditional banks usually focus on a few types of businesses and commercial real estate investing, non-traditional business lenders should be emphasized for any business loan situation. Therefore the recommended business finance and commercial mortgage strategy discussed in this article is to “Think Outside the Bank”.
As I reported in a previous business financing and investing report, in many commercial mortgage situations it is common for a local bank to assess stricter commercial loan conditions than would typically be seen in a competitive business loan scenario. Such banks can often take advantage if there are few business lenders in their market.
A prudent response by business borrowers is to consider non-traditional commercial mortgage options. It is not necessary for borrowers to depend upon traditional banks for business loan strategies. For typical commercial loan scenarios, a non-bank lender can often provide better business financing terms because of the competitive market situation.
There are at least three business financing situations in which business borrowers will typically experience that non-traditional lending sources can provide conditions that are best for the borrower: (1) commercial real estate investment property loan programs; (2) credit card factoring and business cash advance programs; and (3) working capital management programs for credit card processing.
Business Loan Investing Options – Commercial Real Estate Investment Property Loan Programs -
Two of the most common commercial mortgage difficulties experienced by commercial borrowers can be avoided if they “Think Outside the Bank”. The first business financing situation is the prevailing practice of traditional banks to avoid most special purpose investment properties (such as funeral homes and golf courses).
A second business loan possibility is the frequent practice of many commercial banks to add recall and balloon conditions to their commercial loans. The bank can then require early payoff of the commercial real estate loan under stipulated conditions. Both business financing situations can easily be prevented by a non-traditional lending source.
Business Financing Choices – Business Cash Advance Programs -
Most businesses that accept credit cards will qualify for a business cash advance with their credit card receivables. Traditional banks will typically be very poor candidates to consider if a business needs assistance with credit card factoring and business cash advances.
Because successful business owners typically need more working capital than they can obtain from a bank, it is important for a business to “Think Outside the Bank” with non-traditional lenders to help with this working capital management function.
Credit Card Processing Programs – Working Capital Management Choices -
The selection of a credit card processing service can be critical in improving the cash flow of a business with significant credit card activity. Credit card processing providers can be combined with the credit card financing process mentioned earlier.
In coordinating a business cash advance and working capital business loan program, it is usually possible to achieve improvements in the business owner’s credit card processing services. Traditional banks are usually not competitive in providing assistance with a business cash advance using credit card receivables. So it is likely that a non-traditional lender will be the major source of competitive help with credit card processing improvements.
A closing business financing and commercial real estate investment property financing thought: I have written an earlier business loan article about commercial lenders to avoid. It should be noted that there are in fact both traditional and non-traditional (non-bank) lenders which should be avoided.
When business owners are “Thinking Outside the Bank”, they should be ready to avoid troublesome non-traditional business lenders in their investment quest for worthy working capital management dealing with commercial real estate loans, credit card financing and credit card processing.

Even though longer-term business finance 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 processing and commercial mortgage results for business owners. Short-term business financing choices can be misunderstood because of a preference by many business owners for long-term commercial real estate loan and commercial loan programs.Two Important Short-Term Business Finance Options 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 finance options are relevant for most business owners but are frequently misunderstood.Short-term Programs for Commercial Real Estate Investment Financing A long-term business loan is appropriate for many businesses that own commercial real estate investment property. Business properties should normally be financed with a combination of short-term and long-term business finance funds. When a longer-term commercial mortgage is viable, it is preferable to secure long-term business financing, preferably for 30 years. However there will be many commercial mortgage loan situations in which longer-term real estate 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 a Short-Term Commercial Mortgage is Appropriate If a business owner plans to sell or refinance their business within a few years, it is preferable to explore short-term business finance options. The best short-term business loan will have minimal prepayment penalties in comparison to terms commonly included with long-term commercial real estate investment property financing. The avoidance of business finance 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.Short-Term Commercial Real Estate Investment Property Financing 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 investment properties such as golf courses and the interest rate will frequently be in the range of about 12%.Best Investing Possibilities for a Short-Term Commercial Mortgage 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.Fewer Mortgage Lenders for a Short-Term Commercial Real Estate Loan There will typically be a very small number of commercial real estate investment property 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 a short-term commercial real estate loan, so choosing an appropriate provider is extremely important to any business owner considering a short-term business finance program.Credit Card Processing and Business Cash Advance Programs 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 business finance 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. 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.Working Capital Management: Credit Card Financing and Credit Card Processing This business financing technique is called credit card financing or credit card factoring. Some business owners might have used a business finance 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 business finance 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.Limitations and Problems to Avoid with Credit Card Processing and Merchant Cash Advance Programs As with any successful business finance strategy, there will typically be only a small number of commercial lenders who are effective at implementing this working capital management strategy properly. There are also a number of problems to be avoided with business cash advance programs, so choosing the appropriate provider of this commercial financing service is extremely important to any business owner considering a credit card financing program.