Business Loans

Business owners should anticipate that many commercial lenders will provide an online application for commercial loans and business cash programs on their website. It is important that business borrowers understand how to proceed in their search for viable working capital financing and why it is not in their best interest to submit an online application for small business loans.

Commercial borrowers should avoid submittals of application forms for commercial loans until after specific lender interactions. Business owners should especially avoid online applications for business cash advances and business loans, and this commercial funding article will describe how and why to avoid the online application trap involving commercial loans.

Business owners and commercial borrowers will consistently find an almost limitless supply of internet sites for commercial loans. Most business cash advance websites will include some version of an online application. Here is a four-step process for avoiding the unwise use of applications for business loans.

The first step is to avoid the initial temptation to submit a commercial loan application online. It does appear to be convenient for a business borrower to apply for business financing online. Perhaps some business owners are attracted to the anonymous nature of the online business finance application because they have been previously annoyed by sales tactics and evasive answers in loan discussions.

Many commercial lenders have contributed to the pervasiveness of online business finance applications in large part because they are fearful of losing some competitive advantage by not having this capability. However in attempting to match their competition, business lenders and brokers are sacrificing the best interests of their commercial borrower clients by facilitating the online application approach for commercial loans.

The second step is to understand why it is essential to avoid an online business finance application. Submitting a commercial loan application via a website is equivalent to blindly sending a resume to a company seeking employment without any prior discussions or research. What makes an online business loan application even more risky and inadvisable than the anonymous resume example is the usual inclusion of tax identification numbers and other sensitive business data on a commercial funding application document.

There are several key problems associated with an online business finance application. First, there are always potential security breaches during transmission (as well as before and after transmission). Second, there is a significant loss of control by the commercial borrower in the use of their social security number or business tax identification number for checking credit (since many online business finance application processes will result in checking credit before any personal conversations occur). Third, most commercial loans are simply too complex to initiate by an oversimplified automated process. If we can use a brief sports analogy, starting the commercial mortgage loan or business cash advance process with an automated application is tantamount to the kickoff of a football game occurring without any pre-game warmups, coaching pep talks or the traditional coin toss. The easy and convenient approach simply omits too many preliminary and essential steps.

The third step is to replace an online business loan application process with a better approach. The simple and pragmatic solution to the business finance application dilemma is to insist on preliminary personal discussions with an experienced advisor before submitting any form of commercial finance application. A suitable and ethical commercial lender will not ask a commercial borrower to submit any application until the borrower has completed a thorough discussion with the lender confirming that business financing is appropriate for a specific business situation.

Of course it should be anticipated that some commercial lenders and brokers will attempt to minimize the potential problems associated with an online business finance application. Instead of dealing with such a business financing advisor, commercial borrowers should seek out one of the relatively few commercial loan advisors willing to emphasize a conversational and individualized approach to commercial funding for a business owner.

The fourth step is to explore additional resources that will facilitate a better understanding of complex business finance issues. The Working Capital Management Guide and The Commercial Real Estate Financing Guide are two examples of business financing resources that will provide strategies for many problematic circumstances dealing with small business cash management.

Many business borrowers do not prepare adequately for the commercial mortgage business loan problems that are common in most business financing scenarios. By anticipating typical commercial loan difficulties, business owners are more likely to avoid potentially disastrous business finance consequences.

With rapidly deteriorating financing for residential investment property, overcoming business loan and commercial mortgage problems is even more important. This summary provides an introduction to four critical commercial loan factors and should assist commercial borrowers to better anticipate key business financing difficulties.

It is not unusual to find that business investment lenders and business loan brokers are not as forward-looking about business financing and investing difficulties as most borrowers would expect, and I have published another article about commercial lenders to avoid. The focus here is on four typical commercial mortgage loan and SBA business loan difficulties often overlooked by commercial lenders and borrowers.

Commercial borrowers should be prepared for commercial loan scenarios that involve unexpected business financing problems. With business financing there are several key commercial mortgage problems which should be avoided. Business loan problems are more serious and prevalent than many borrowers would imagine.

Some of these commercial mortgage business loan difficulties might be unavoidable, but in most cases these business financing and SBA loan challenges can be successfully overcome. Commercial borrowers will be poised to take proper corrective action if they are aware of common commercial loan difficulties.

Avoidable Commercial Real Estate Investment Property Financing Scenario Number One: Use of secondary business financing -

Many commercial borrowers want the flexibility to use subordinated debt (a seller second or other secondary financing) in order to acquire a commercial property or business opportunity investment with a smaller down payment. Many forms of business investing will not permit a seller second or other forms of subordinated debt. With a commercial loan via non-traditional business lenders, a commercial borrower can use subordinate business financing (including seller seconds) to reduce the amount of their down payment.

Commercial Mortgage Example Number Two: Sourcing-seasoning assets and seasoning of ownership -

Some commercial lenders will require borrowers to document the source of the down payment for a purchase (sourcing). Many business lenders require borrowers to document where down payment money is coming from, often for up to 12 months in order to provide seasoning confirmation. Ownership seasoning is determined by establishing a minimum period for ownership prior to being eligible for refinancing.

Such a problem will probably not deter all borrowers. When it does apply, business borrowers should insist on a lender without seasoning and sourcing requirements.

Business Financing Example Number Three: Commercial mortgage recall terms -

Business loan recall conditions will often allow the commercial lender to force the borrower to repay their loan before the normal loan expiration. If a commercial loan agreement does not include recall terms, such a possibility is not of immediate concern to a borrower.

Commercial lenders will routinely include recall conditions in a business loan agreement. The provisions which will prompt a recall will vary and typically include annual business lender monitoring of financial statements, tax returns and credit history. Without agreed income, tax returns and credit standards, the lender can choose to require the borrower to pay off the commercial loan within a very short period of time.

Contingency Plans for Business Finance Recalls: What to do about a commercial loan recall -

To avoid an unanticipated recall scenario, commercial borrowers would be wise to consider only commercial loans which do not have recall terms. For commercial borrowers who have recall provisions in their business financing agreement, it will be equally wise to consider refinancing their business loan or commercial mortgage before a recall occurs so that refinancing is accomplished when it is most appropriate for the borrower.

When borrowers receive a business financing recall, they must quickly obtain refinancing assistance. When reviewing commercial loan choices for refinancing, borrowers should attempt to exclude potential lenders that require recall terms.

Business Loan Example Number Four: Business financing that needs a long-term commercial loan -

Is long-term investing and financing really possible for a business loan? Some business investment lenders will only offer 5 years (or less) before commercial real estate financing will expire with a balloon payment due.

There are commercial mortgage programs which can provide long-term financing, even though many lenders will only offer shorter-term options for investment business financing. Longer-term commercial real estate financing will often be the critical difference that facilitates a successful business investment because a new business loan will not be required for many years and commercial loan payments will also be reduced.

Additional Commercial Loan Problems and Solutions -

Unfortunately commercial borrowers will frequently encounter commercial mortgage business loan problems similar to those described here. To better prepare for this, an advisable approach is to explore business financing resources that will facilitate a better understanding of complex commercial loan issues. The Commercial Real Estate Loan Guide and The Working Capital Management Guide are two examples of business finance resources that will provide possible solutions for many difficult commercial financing situations.

Working with a bank to obtain a small business loan can be an easy or difficult process, depending on how prepared you are to meet with the lender and discuss your business’ situation and needs.

One of the leading causes of business failure is insufficient start-up capital. Ironically, though, lenders rarely approve loan requests for the businesses that have the highest need for a small business loan. Instead, lenders tend to prefer to offer small business loans to those businesses that have been in operation for two or more years.

According to All Business, it is estimated that 95 percent of all entrepreneurs opened their businesses with capital from their own pockets, or from money they borrowed from relatives, friends, or another person in their community. Lenders want to see business owners risk their own funds in the business venture, and often require that the business owner or owners provide a minimum of 25 percent of the capital needed to start a business, and at least that much equity in the business if the business is already in existence. Simply stated, lenders aren’t as willing to take a risk when a business owner doesn’t even risk their own money in the investment. Businesses with a history demonstrating success in paying their bills for two and a half to three years will have the easiest time obtaining a small business loan because they’ve proven their ability to meet financial obligations.

Preparing a Small Business Loan Proposal

When preparing to apply for a small business loan, be prepared to face the facts that are against you, and use them in your favor. Persistency is necessary if you want to land a small business loan. Lenders follow certain criteria to determine if the small business loan is a wise investment for the bank. Most importantly, the bank will determine if the small business loan is likely to be repaid. As with other businesses, banks and other lenders must answer to their investors and stockholders, and unpaid loans show instability in the bank or financial institution.

Items compiled into a small business loan request include the following:

- Amount of money requested

- Likeliness of business profitability and demonstration of cash flow needed to service a small business loan

- Collateral, if any is owned by the business

- A reasonable balance between debt and equity

Know Your Banker

Whether you have a start-up small business or an established small business, the first step in obtaining financing through a small business loan is to develop a business relationship with your banker. Consider asking your bank’s manager to open a file for your business, and provide quarterly or yearly profit and loss statements. When your business is in need of financing, the bank will already have a file and will be at least somewhat familiar with your operations. When the time comes to apply for a small business loan, approach the banker with a solid business plan to inspire the lender’s confidence in your business. Provide information on business operations, marketing efforts, management ability, and financial projections for three years, as well as a cash flow projection and personal balance sheet demonstrating the worthiness of the business.

To prove worthiness for a small business loan, prepare proper documentation. Keep your credit reports as clean as possible. A lender will assume that you operate your business in the same manner that you manage your personal finances. The lower your credit rating, the slimmer your chances are of obtaining a small business loan.

When applying for a small business loan, search for a lender by first approaching the bank or banks in which you currently do business. Since you’ll need to share all of your personal and business financial information, it can be beneficial to apply with a financial institution that already has that information on file and is perhaps familiar with your profile and spending habits. If your credit rating is high, your changes are good of being approved for the small business loan.

If you are unable to work with a bank or credit union in which you currently do business, or if you’d prefer not to work with your bank or credit union for your small business loan, look for a lender who wants your business. Search the business section of your local newspapers for special financing offers on small business loans and other loans. These lenders are actively looking for people needing small business loans, and the process of obtaining a small business loan with these types of lenders may be easier and faster. Additionally, check into credit unions. Because credit unions tend to be smaller financial institutions, you may be able to speak directly with a loan decision maker. Larger banks and other types of large lenders may have more rigid rules for small business loans, and the processes that they employ may be more complicated for small business loans.

If, at First, You Don’t Succeed

If your first attempt at obtaining a small business loan fails, don’t be discouraged. Small business loans are often not approved with the first lender that you approach, and be assured that you’re not alone. Especially if you have a start-up business, lenders don’t always approve small business loans, even in the most ideal situations. Search for other lenders, or become resourceful and look into other sources for loans rather than a small business loan, including home equity loans and personal loans, both of which can be used for business purposes.

Author: Rebecca Hubbard Game
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The recent credit crunch has caused banks and other traditional lenders to tighten their underwriting standards. Financing for start-up and small businesses has become more difficult to obtain. Now, more than ever, entrepreneurs have to be a little creative in seeking financing. If you are a business seeking financing here are few sources that may aid you in your search.

Angel Investor

Angel investors look to invest in businesses that return a higher profit than a traditional investment. Many angel investors are successful entrepreneurs who want to help other entrepreneurs get their business off the ground. Angel investors look for businesses which can successfully compete in an industry. Angel investors usually come at the stage of a business where some funding has been obtained but the business needs a significant amount more to get to the next level. Financing from an angel investor is usually expensive with costs ranging from 10 to 50 percent of a company’s equity.

SBA

The SBA assists in obtaining a loan by guaranteeing the loan you get from a bank. Many banks have SBA loan centers and the process may even be streamlined where you do not have to wait long for an answer. The SBA is not a direct lender. Banks are willing to fund the business because the SBA backs the loan in case of default. The SBA guarantees up to 85% of a loan, depending on the size, type and maturity of the loan. There are several different types of SBA loan programs available.

Community Express Loans

Community Express is administered through the SBA loan program and is available at various selected lenders. This loan program is for pre-designated geographic areas serving mostly low and moderate income individuals and start-up small businesses. The program also includes technical and management assistance. This assistance is designed to help increase the chances of success for the small business.

Micro Business Loans

This loan program provides small loans to start-up, home-based and micro-businesses. Entrepreneurs with less than perfect credit needing to start or expand a business may benefit from a micro loan program. The loan does not come directly from the SBA. The SBA provides low-cost loans and grants to intermediaries such as community economic development centers which redistribute the funds to qualified small businesses in the form of micro business loans. You can borrow as little as $1,000 up to $35,000 and loans must be repaid within six years.

Patriot Express Business Loan

The SBA has launched a new loan program for military service members, veterans and their spouses called the Patriot Express Loan Initiative. The Patriot Express Loan builds on the more than $1 billion in loans the SBA guarantees annually for veteran-owned businesses. The loan can be used to establish or expand a small business and the maximum loan amount is $500,000.

Social Lending

Peer to peer lending is not only for personal loans but can also be used for business loans. This type of lending matches borrowers directly with lenders, circumventing the banks. It is a great alternative to traditional banks’ stringent business loan requirements. With peer to peer lending, a typical loan could be funded by as many as 100 people, thereby increasing the chances your loan will get funded. www.Prosper.com and www.globefunder.com are peer to peer lending sites which also offer business loans.

Friends and Family

Not surprisingly, more than 50% of all start-up costs for new entrepreneurs come from friends and family. America thrives on entrepreneurship and friends and family are a big source for start-up costs. If your credit is weak you may have little alternative but to seek a loan from a friend or family member. This form of lending has so evolved that there is now a website which will help you facilitate a loan between friends and family. www.virginmoneyus.com will provide formal loan documents between friends and family.

More resources can be found at: Business Loan Sources

If you find that you are having difficult when looking for a business loan then there are a number of different potential funding avenues that you may want to investigate. In fact, you may want to investigate these alternative financing methods even prior to beginning the business loan application process.

In regards to obtaining debt financing, the alternative to this in general is that you could seek to raise capital from angel investors or a venture capital firm. These companies specialize in making equity investments into companies that have substantial growth potential. However, unlike a business loan, an equity investor will require that you sell shares of your business to the individual or investment firm. Additionally, many professional investors will want a substantial say in regards to the direction of the company, and they will want to sit on the board of directors.

Another alternative to a traditional business loan is a business line of credit, which much like a business loan, can be secured by real property that you already own. If you do not require one lump sum of capital in order to launch of expand your operations then it may be in your best interest to secure a line of credit that you can drawn down as needed. Much like a business loan, a formal business plan, personal financial statements, credit checks, and collateral checks will be required to secure this type of financing.

If you are already in business, you can also obtain a cash advance on your accounts receivables or credit card receivables based on your monthly volume. However, these business loans usually carry very high interest rates as they are secured ultimately by your customers’ ongoing ability to you. This is often referred to as factoring, and this method of obtaining a business loan or line of credit is really only appropriate if you operate a capital intensive business.

A good entrepreneur knows that the essence of striking gold in business is finding the right opportunity and going after it despite the risks. These opportunities keep on sprouting when you are doing business. Or you might have stumbled upon one and contemplating taking it. Your financial condition may not help you to translate your potential for financial success and independence. Business loans can facilitate this translation.

Obtaining finance is central for starting a new business or making business grow. Financing a business through business loans can be a formidable task. But a good preparation can easily sort out any matter detrimental to getting your business loans approved. Taking a loan for business is an important decision. A business loans borrower must understand that while taking loans can help a business grow, a wrong decision will mean debt and actually damage financial stability of a business. Determine how much loan amount you require as business loans. There are different business loans products to decide from.

A well thought out business plan is the most significant part of getting a business loans approved. The business plan should have projection. Don’t go into details, a concise to the point executive summary which answers all the queries of a business loans, will gain easy acceptance. If you have an established business – financial statement, cash flow for the past three years will be required.

When
Business Loans application is reviewed, some of the following questions might come up in one version or the other.

o How much loan do you require?

o What about business profits, does it have enough cash flow, to service the debt?

o Is there collateral to cover the loan?

o Is there a reasonable balance between debt and equity?

Business loans lender would pay much emphasis on your repayment ability. He would like to know if you have invested your own money in the business. He would not be very interested in taking risk in a venture where the business owner has not.

For business loans it is important to know your credit history. The business loans lender will undeniably go through your credit history. Go through your recent credit history and find out faults and recent credit discrepancies. If there are inconsistencies, get them removed. A credit history that is questionable will most likely not get business loans. However, if you attach a letter explaining your credit conduct can evoke a favourable response. The worst mistake will be to hiding your faults. This will most certainly reject an otherwise encouraging business loans application.

Few people realize it but locating a good business loans lender is integral to finding business loans. It is not easy to find business loans lender that abides by your needs. In fact it is an investment in itself. Look for business loans lender who is willing to work with you and for you.

Business loans also depend on your character and your ability to be present yourself, your business details and your confidence. They also count in getting your business loans accepted. In case business loans application is rejected – make sure you know the reason why this happened. This will enable you to rectify mistakes next time you make attempt to get business loans.

Collateral is chief ingredient for business loans. Secured business loans will require collateral and greatly add to the business loans application. Business loans without collateral are unsecured business loans. They are usually difficult to find. But unsecured business loans will only satisfy small financing needs.

Business loans are available for most financing needs. Business loans can be used for starting a business, refinancing, expanding your business, purchase of equipments or any other commercial investment. Insufficient business funds are one of the leading causes of business failure.

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Private lending is an alternative to conventional loans such as you would apply for at your local bank or Mortgage Company. They are also referred to as Hard Money loans. Private loans are short-term loans ranging from 3 months to 3 years. They have a quick approval time line and usually a 55% to 75% LTV (loan to value) rate. This is a great option for residential, commercial, construction, and land investment purchases that are expected to have a fast turn around.

There are a variety of Hard Money loans:

-Hard Money Acquisition Loans – This type of loan is used to acquire real estate using the loan proceeds.

-Mezzanine Financing and Loan – This is a loan subordinate to a Primary Lender. This is a debt instrument, which is paid back at the time of sale or refinance of the total capital stack. Mezzanine loans have flexible structure, including debt and equity mixes that can increase the borrowers leverage.

-Hard Money Acquisition and Development Loan – These loans are used to acquire and develop property with the intention of improving it. The loan proceeds are dispersed with interest only paid on the funds Distributed. The loan amount is determined by the overall LTV Expected following the improvements.

-Asset-Based Hard Money Loan – This can be used for any purpose. Collateral is put up for security. Collateral may be property, equipment, inventory, etc.

-Hard Money Bridge Loan – This is money that is used for only a short period of time until permanent financing is put in place. This is a perfect solution for a business opportunity or acquisition that needs a quick process for financing. Circumstances that may be considered are Buy-Outs; foreclosures; construction; hotel and motel; office complexes; commercial business opportunity; apartment buildings and even golf courses.

-Hard Money Construction Loan – This money is used for the construction of a building or other improvements of real property. The land or the improvements become the collateral for the loan. Some lenders will loan up to 100% of the cost of construction available depending on the determined value upon the completion of all improvements.

-Hard Money Credit Enhancement Loan – This loan is for a borrower who lacks the credit or capacity to acquire a conventional loan of sorts.

-Hard Money Raw Land Loan – This can be used for lots to large acreage. The LTV ratios are determined by the price it would be valued at a 90 day quick sale.

The key to Hard Money loans is the ability to do a quick turnaround in your sale of the property purchased, or speed in which you are able to acquire a more permanent long term financing.

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For anyone seeking residential hard money loans, time is of the essence. The major reason that people seek this kind of unconventional financing is because banks simply take too long, or they are unable to meet the increasingly strict criteria that the lending institutions put forth.

There is some confusion over what the money can be used for. One reason for the confusion is that lenders and brokers use different terminology. In some cases, they mean to confuse the borrower. In others, they simply forget that everyone is not as “savvy” as they are. Below, you will find some common terms used by financers and what those terms usually mean.

Acquisition loans are hard money home loans used to purchase a property. The amount available will vary depending on the lender. It is usually a percentage of the appraised value. Commercial banks typically require that you have around 20% of the purchase price. Else, they will charge a higher interest rate. Private lenders may be able to finance the entire amount and the closing costs are usually lower.

Construction loans may be used to build a residence, but they can also be used for repairs, expansions or upgrades. Current homeowners or real estate investors may be interested in these types of hard money home loans. Conventional lenders typically require that the property in question is or will be your main residence before they will approve financing. Private lenders are usually more flexible.

Mezzanine loans typically refer to residential hard money loans that are similar to second mortgages, but the term may also be used to refer to specific kinds of business loans. Mezzanine loans are short term, typically three years or less. The funds may be used for a variety of reasons, including “buying out” a business partner. The amount that you can borrow depends on the resale value of your home or business, minus the amount of other outstanding loans, such as a first mortgage, in other words, the amount of equity that you have.

Asset based hard money home loans may be used for any purpose, as long as you have collateral or assets to “put up”. Conventional lenders refer to them as secured loans. The primary difference is the time that it takes to complete the loan, but there may be other differences. If you have collateral, private lenders may not be as concerned by your credit score. For conventional lenders, a less than perfect credit score may end up costing you thousands of dollars more, because of higher interest rates, if they will approve the loan at all.

Bridge loans fill in the gap when permanent financing solutions are in the works, but the actual purchase needs to be completed quickly. Bridges may be commercial or residential hard money loans. The funds can be used for practically anything. Depending on the lender, there may be no limit to the amount you can borrow. The funds are made available to you quickly. But, bridge loans are very short term solutions, typically not more than 6-24 months. So, you need to know where your long term financing is coming from.

Both private and commercial lenders might use other terms that you do not understand. The best advice: When you do not understand, ask for clarification. As mentioned above, some lenders simply forget that everyone is not familiar with the “lingo”. If a lender is unwilling to explain something to you fully, then you should probably seek another source for your residential hard money loans.

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Hard money is a way to secure property in a short period of time then refinance into conventional finance and can provide an alternative source of financing for real estate investors. Conventional institutional lenders will not finance hard, hairy loans and on the other side equity investors demand very high returns and/or shares of profits.

Investors who borrow hard money understand that this type of loan is more expensive than conventional loans. A hard money borrower perceives that the loan’s value extends beyond its cost. Investor rehab loans are particularly easy to find with a number of competitors but at the same time you should watch out for the hard money lenders that are also wholesalers.

The Lenders

Lenders of so-called “hard money” are becoming more common and more accessible: Perform a search for “Las Vegas hard money lenders” and you will discover many results, many for the state of Nevada, specifically. There are even private lenders based online, at your convenience.

Lenders have much stricter criteria these days, and for a good reason. In today’s society, the laws favor consumers, not banks. So lenders turn to look at whether or not the applicant is worth the financing and if the business plan is practical. They can scroll through the list of entrepreneurs and make a selection based on the person they wish to lend money. Most loans when approved are made via credit card or PayPal.

Most lenders ask borrowers to pay a minimum of five percent upfront deposits, as a guarantee. The greater amount of deposit will shrink your interest rates and mortgage payments under most circumstances. Lenders want the loan to be current, not to have to complete a foreclosure. But can you make up the defaulted amount over a period of months?

The Borrowers

Most people apply for hard money loans when they have credit problems, are in default, have had a foreclosure or bankruptcy, have been recently unemployed, or for some reason cannot provide proof of income.

Borrowers are advised not to work with hard money lenders who require exorbitant upfront fees prior to funding. If you feel you have been the victim of unfair practices, contact your state’s attorney general office or the office of the state in which the lender operates.

Some borrowers love to use hard money lenders on all real estate deals. Borrowers of hard money loans qualify based on the value of their property more so than the quality of their credit history. However, there is a market out there that hard money lenders cannot fund. So make sure you do your research right before taking on a hard money loans.

Author: Cebi Moshi
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