Business Financing and Residential Mortgage Loan Comparisons

Business Financing and Residential Mortgage Loan Comparisons
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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Steve Bush is a business finance and commercial real estate
investment property loan expert. Find out more about
commercial mortgage - business opportunity loan strategies
recommended by AEX Commercial Financing Group at =>
http://www.real-estate-investment-property.com