Working Capital Business Loan and Business Cash Advance Options

Even though longer-term business financing 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 financing and commercial mortgage results for business owners. Short-term commercial financing choices can be misunderstood because of a preference by many business owners for long-term working capital management programs.

Short-Term Commercial Loan and Credit Card Processing Choices

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.

Commercial Real Estate Loan Short-term Programs

It is important to note that long-term business financing has a very important place for any business that owns commercial property. Business properties should normally not be financed with short-term funds. When longer-term business financing is appropriate, it is essential to obtain a long-term commercial mortgage of at least 15-20 years (and longer is even better).

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.

While we will not attempt to describe the technical aspects of commercial loan prepayment fees and lockout fees in this article, we will note that the absence of such fees in most short-term commercial mortgage loan programs is a very positive aspect of these short-term working capital management options. The lack of such penalty fees could easily translate to a savings of 10% to 30% or more if a business owner needs to sell their commercial property during the time period which would have triggered prepayment fees and lockout fees in a traditional longer-term commercial mortgage loan.

What are the Tradeoffs in a Shorter-Term Commercial Mortgage?

Although prepayment and lockout fees will typically be avoided with a short-term commercial mortgage loan, there are some trade-offs to be made if a business owner selects a shorter-term working capital loan. When short-term commercial mortgage loans are available, the interest rate will frequently be in the range of 11% to 13%, the loan-to-value will typically be under 70% and such a working capital loan will not be readily available for special purpose commercial properties.

Most Likely Short-Term Business Financing Candidates

The maximum time period for a short-term commercial mortgage is usually three years. The most likely candidates for a short-term business loan are mixed-use, retail, office, multi-family and warehouse properties.

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.

Credit Card Processing and Credit Card Financing

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 working capital management 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.

Credit Card Factoring and Credit Card Processing

This commercial financing approach is referred to as "credit card receivables financing". Some merchants have probably used a business financing approach known as "receivables financing" which generates cash for the business by selling their business receivables at a reduced price.

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.

Many smaller businesses do have credit card sales activity and sales volume. The credit card sales activity becomes a financial resource for business financing. A working capital advance of $250,000 to $300,000 and higher is possible based on credit card sales and monthly sales volume.

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.

Lender Problems and other Limitations with Credit Card Factoring

As with any successful working capital management strategy, there will typically be only a small number of commercial lenders who are effective at implementing the working capital loan strategy properly. There are also a number of problems to be avoided with business cash advance programs, so choosing the appropriate provider of this working capital management service is extremely important to any business owner considering a business cash advance program.

Copyright 1995-2007 AEX Commercial Financing Group and Stephen Bush. All Rights Reserved.

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