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Business Opportunity Financing and Business Loan Basics

There are approximately 25 critical differences between residential real estate investing and commercial real estate investing. Because more residential real estate investors are exploring commercial real estate and business finance opportunities, this business opportunity financing and business loan report is designed to help educate new commercial investors about key commercial mortgage and commercial loan issues.

SBA Loan Financing

Even though there are significant difficulties with Small Business Administration business financing programs, many commercial borrowers will benefit from SBA loan financing. At the same time, it is possible that many borrowers should avoid such commercial mortgage and commercial loan strategies. In spite of this possible dilemma, the use of SBA loan programs should be evaluated in many business loan situations.

Business Opportunity Financing - Business Finance Strategies

Financing to buy a business opportunity is frequently complicated because real estate is not included in the financing of the business purchase, and normal business financing is not feasible. There will be fewer prospective lenders, and requirements such as length of loan will be materially different than with a commercial property loan.

Balloon Payment Requirements for a Business Loan

Some commercial lenders will use balloon payments as a substitute for a true long-term commercial mortgage. With balloon payment terms, a commercial borrower will be faced with a large lump-sum payment that is due after a typical period of three to ten years. At that time, if borrowers are unable to afford such a large payment, they will be forced to either sell their business or refinance their business loan or business opportunity loan.

Length of a Business Loan

Long-term commercial mortgage coverage is normally offered by only a few specialized commercial lenders. Business opportunity business loans are typically limited to ten years. Commercial loan terms will be restricted to a three-year period or less by many local and regional banks.

Business Loan and Commercial Mortgage Recall Provision

The ability of a lender to call a commercial mortgage early is permitted if a recall clause is included. This clause allows a lender to require early repayment of the business loan under certain conditions. The circumstances which can result in the lender calling the business finance loan can include regular review of tax returns, credit history and financial statements.

Appropriate Business Finance Lenders

The best commercial lenders for commercial mortgage and business opportunity financing are not likely to be local or regional banks. In general traditional banks are seeking a smaller role in business financing and are especially limited in their ability to handle specialized business finance situations. Because most business loan situations are more complex than residential financing, a prudent commercial borrower should search for lenders specializing in commercial financing.

Other Critical Business Loan Factors

The business finance environment in the United States has many factors that distinguish it from residential financing. The factors not described in this report are included in other business loan reports. A few of the topics not included in this report include stated income business financing, the difficulty of refinancing an SBA loan, commercial loan appraisals and commercial financing lockout penalty fees upon sale or refinancing.

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