There are approximately 25 critical differences between
residential real estate investing and commercial property
investments. Because more investors are exploring business
finance opportunities, this report is designed to help
educate new commercial borrowers about key issues involving
commercial mortgages and commercial loans.
Environmental requirements for business finance will be a
complex issue for numerous business investments.
Environmental issues involved in a business loan will
primarily depend upon the commercial lender as well as the
type of business. More extensive requirements can impact
both the cost and timing for a commercial mortgage loan.
Tax returns and financial statements for a business loan
are likely to be a concern for all commercial borrowers.
Whereas residential mortgage financing is likely to involve
only personal tax returns, most business financing will
include a review of business tax returns as well. Business
financial statements and personal financial statements will
be required for certain kinds of business opportunity
financing and commercial real estate financing.
Secondary financing will often be a means of acquiring
desired commercial loans. The use of seller financing or
secondary financing is a prudent business financing
strategy to reduce capital requirements for the borrower.
However some commercial lenders will not accept secondary
commercial financing.
Seasoning and sourcing of funds for commercial loans can be
an unexpected requirement. When purchasing a business, some
lenders will require that borrowers document where the down
payment is coming from (sourcing) and how long the funds
have been in that location (seasoning). If a borrower
cannot adequately provide this documentation, the choice of
commercial lenders will be more restricted.
Collateral and cross-collateralization for business loans
will be an insurmountable obstacle for some commercial
borrowers. Collateral requirements for business financing
will depend on many factors such as down payment, type of
business, credit scores and the type of financing needed.
Cross-collateralization refers to lender requirements
involving personal collateral such as a home used as
collateral for a business loan.
Business plan requirements for commercial mortgages or
business opportunity loans can be both time-consuming and
expensive. A business plan is not always required for a
business loan, but when one is required this will add
significantly to the cost and length of the loan process.
Cash out limitations for refinancing of commercial loans
are increasingly causing problems for many commercial
borrowers. Commercial lenders differ significantly
regarding restrictions imposed on the amount of cash out to
the borrower when refinancing. Some lenders will not permit
any cash out whatsoever while others will limit cash
received by the borrower to a particular amount. The
preferred approach is to use a lender that will allow cash
to be paid out up to an agreed loan-to-value (frequently
75%).
Lockout penalties for business financing should always be
analyzed thoroughly. A lockout penalty is much more severe
than a prepayment penalty in that such penalties can
effectively prevent a commercial borrower from selling or
refinancing during a prescribed period (often two to five
years).
In addition to the issues noted above, numerous other key
business finance and real estate mortgage issues will also
be important to evaluate. Commercial mortgage requirements
are very different from residential financing requirements
in the United States. Additional business finance reports
include a discussion of many other significant financing
factors. Separate report topics include SBA loan
refinancing, business opportunity financing, stated income
business loans and commercial appraisals.
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Steve Bush is a small business loans expert - learn how to
avoid mistakes with commercial loans and find out about
business cash management strategies at AEX Commercial
Financing Group =>
http://aexcfgllc.com
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