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In response to a volatile residential investing and financing environment in the United States, residential real estate investors are increasingly pursuing commercial mortgage and commercial real estate possibilities. It is essential for business owners, commercial property owners and business investors to be fully-informed in advance about the current SBA loan and business finance environment. There are numerous significant distinctions between commercial real estate investing and residential real estate investing. Of over 20 major commercial loan differences, several important issues will be covered in this business financing article and other commercial financing elements will be described in additional reports. 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 Down Payment Down payment requirements for buying a business commonly vary from 10% to 25% or more. The specific amount will depend on business experience of the borrower, requirements for business opportunity business finance, type of business and credit scores. Size Restrictions for a Business Loan and SBA Loan Commercial property loans and business opportunity financing less than $100,000 are not routinely available. A typical maximum for a stated income commercial mortgage is $2 million. Several common business financing possibilities are limited to a $5 million maximum. Interest Rates for Business Opportunity Financing and Business Loan Commercial mortgage rates are usually above residential financing and rates, and an average range of 8-12% is currently likely. Borrowers can choose between fixed and variable business finance rate options. Business financing involving a business opportunity (without real estate) is likely to include interest rates up to 3% higher than an equivalent commercial property loan. Personal Guarantors for Business Opportunity Financing and Business 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. Business Loan and Commercial Mortgage Appraisals It is normal for commercial property and business opportunity appraisals to require over a month to complete. Commercial appraisals are much more complex and expensive than residential appraisals. Business opportunity financing and commercial loan value is traditionally based on business income rather than a comparable property analysis used in residential appraisals. More 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. Copyright 1995-2007 AEX Commercial Financing Group and Stephen Bush. All Rights Reserved.
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S.A. Bush provides straightforward advice for commercial mortgage - business opportunity financing and working capital management - business loan situations
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