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Article Directory :: Finance & Investment Articles
For investors primarily familiar with residential mortgage financing, the early stages of considering business financing options can produce many unpleasant surprises. By reviewing the key points in this and related business finance articles, the process of commercial real estate and business opportunity investment financing should be more successful and less stressful.
There are many critical differences between residential real estate investing and commercial real estate investing. Of the approximately 25 key business finance differences, some key factors will be addressed in this business loan report and other business financing factors will be discussed in several separate articles.
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. In general all individuals owning over 20% of a business will typically be required to personally guarantee a commercial loan.
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). This amount will primarily vary according to credit scores, type of business, business experience of the borrower and whether business opportunity financing is required.
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. The basis for business loan and commercial mortgage value is primarily based on the income generated by the business rather than an analysis of comparable properties prevalent with residential mortgage loans.
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. It is feasible to obtain both fixed and variable commercial mortgage interest rates. 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.
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