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Session 9 How to Finance Your Business
Question:
“Raising start-up money is one of the great hurdles in starting a business…
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How To Finance Your Start-up Business
Sunday, December 20th, 2009How to Avoid Business Opportunity Investment Financing Problems
Thursday, December 17th, 2009Buying a business investment without real estate requires specialized business opportunity financing. Although this kind of business financing is available, there are several potential problems which should be anticipated and avoided by prospective buyers.
In order to buy a business, a commercial borrower is likely to need business financing. If the business includes commercial real estate, the borrower will need a commercial mortgage. If the business purchase does not involve real estate, a business borrower must use a business opportunity loan.
When obtaining a business opportunity loan, borrowers will discover that many lenders simply do not provide business loans that do not include real estate as part of the business purchase. There are several other important business financing issues to analyze prior to buying a business without commercial property.
The level of interest for buying a business opportunity investment has increased due to the reduction of activity involving residential real estate investing. However, because there are so many critical differences between financing residential real estate and business financing, it is important for potential business owners to educate themselves before proceeding.
This summary is designed to address the unique business financing requirements involved when real estate is not involved. Our suggested approach to business opportunity financing is provided below.
Prospective business owners should begin business opportunity investment financing plans by formulating a realistic assessment of cash available for a down payment and desired maximum business purchase price. In most business financing scenarios, a total down payment approximating 25% of the purchase price is advisable. Usually seller financing is permissible for a portion of the down payment, but a potential buyer generally needs to plan on investing a minimum of 10% or more of the purchase price from their own funds even if the seller is providing 20% or more.
Purchasers should evaluate whether a Small Business Administration loan is relevant for their particular business financing and investing circumstances. This step is both important and somewhat complicated, and the involvement of an SBA loan expert is strongly advised. Among the issues to explore are whether collateral is available for SBA financing and how important refinancing is to your overall business opportunity financing process.
Buyers should make an early determination concerning the length of lease to be arranged in conjunction with buying the business. As noted previously, business opportunity financing and investing does not involve the purchase of commercial real estate, so arrangements must be made for a long-term lease. The length of the lease is important because the normal business finance terms will restrict the length of business financing to the period covered by the lease (although buyers should anticipate a ten-year maximum for investment business loans). For example, with a seven-year lease, the commercial loan is likely to be for seven years, and even with a fifteen-year lease, the commercial financing will probably expire in ten years.
Even though real estate is not included in a business opportunity transaction, buyers should nevertheless investigate whether including real estate is a viable option or not in order to buy a business. With the inclusion of commercial property, you can obtain a longer business loan and the interest rate will be lower. However, improved business financing terms should not be the sole factor you look at, since the absence of a commercial mortgage can prove to be a significant advantage in a declining real estate market that currently exists in many areas of the country.
Investors and buyers should discuss business finance options with a business opportunity loan expert before making any offers to buy a business investment. These discussions should include issues such as down payment possibilities, potential purchase price, seller financing, tax return requirements, buyer credit scores and collateral options.
As a final precautionary note, in most circumstances the availability of business opportunity financing is more restricted than commercial real estate financing. There are also some problems unique to business opportunity loans, and commercial borrowers should make every effort to avoid these potential business financing complications.
Steve Bush is a business cash advance and commercial loans funding expert – avoid mistakes with small business loans and commercial real estate loans – get business finance help at AEX Commercial Financing Group => http://www.real-estate-investment-property.com
Business English Vocabulary Lesson For Esl – Finance & Accounting Vocabulary 2
Friday, December 4th, 2009
Visit http://BusinessEnglishPod.com to download this video and others covering more business ESL vocabulary.
This Business English video ESL lesson introduces English vocabulary related to finance…
How Would I Convince A Bank To Finance My Business?
Sunday, November 22nd, 2009Say I got a bank to finance my business, the product which I sold ended up being a failure on the market and now the banks don’t want to finance my business. What could I do to convince them to help me finance for my new product?
Business Finance and Commercial Real Estate Mortgage Loan Choices
Sunday, November 15th, 2009Even though longer-term business finance 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 processing and commercial mortgage results for business owners. Short-term business financing choices can be misunderstood because of a preference by many business owners for long-term commercial real estate loan and commercial loan programs.
Two Important Short-Term Business Finance Options
Two of the most overlooked short-term working capital business loan strategies are short-term commercial mortgage loan programs and business cash advance programs in conjunction with credit card processing. Both of these business finance options are relevant for most business owners but are frequently misunderstood.
Short-term Programs for Commercial Real Estate Investment Financing
A long-term business loan is appropriate for many businesses that own commercial real estate investment property. Business properties should normally be financed with a combination of short-term and long-term business finance funds. When a longer-term commercial mortgage is viable, it is preferable to secure long-term business financing, preferably for 30 years.
However there will be many commercial mortgage loan situations in which longer-term real estate business financing is not appropriate for the business owner. In such circumstances it is important for a business owner to realize that there are viable short-term working capital management options.
When a Short-Term Commercial Mortgage is Appropriate
If a business owner plans to sell or refinance their business within a few years, it is preferable to explore short-term business finance options. The best short-term business loan will have minimal prepayment penalties in comparison to terms commonly included with long-term commercial real estate investment property financing.
The avoidance of business finance prepayment fees and lockout fees fees in some short-term business financing programs is an important benefit of these short-term commercial mortgage approaches. The absence of these potential fees could produce a savings of up to 20% or more if the business property is sold during the period which would have involved lockout fees in a longer-term commercial loan.
Short-Term Commercial Real Estate Investment Property Financing Limitations
There are some trade-offs that need to be understood if a business owner chooses shorter-term business financing even though prepayment fees will usually be avoided with a short-term business loan. When short-term commercial real estate financing is a realistic option, the loan-to-value will usually be no higher than 70%, the commercial mortgage will not be readily available for special purpose business investment properties such as golf courses and the interest rate will frequently be in the range of about 12%.
Best Investing Possibilities for a Short-Term Commercial Mortgage Loan
Warehouse, multi-family, office, mixed-use and retail business properties are the best possibilities for short-term business financing. Business owners should be comfortable with a time period of less than three years for a typical short-term business loan.
Fewer Mortgage Lenders for a Short-Term Commercial Real Estate Loan
There will typically be a very small number of commercial real estate investment property lenders who are effective at implementing the short-term commercial mortgage loan strategy properly. There are also a number of problems to be avoided with a short-term commercial real estate loan, so choosing an appropriate provider is extremely important to any business owner considering a short-term business finance program.
Credit Card Processing and Business Cash Advance Programs
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 business finance 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.
Working Capital Management: Credit Card Financing and Credit Card Processing
This business financing technique is called credit card financing or credit card factoring. Some business owners might have used a business finance technique referred to as receivables factoring to sell future receivables at a discount and receive immediate cash.
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.
What these businesses do have in many cases is documented sales volume and documented credit card sales activity. It is this documented level of sales volume and credit card sales activity that becomes a financial asset to the business and its business finance strategies. Business cash advances from $5,000 to $300,000 can usually be obtained based on a merchant’s sales volume and future credit card sales.
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.
Limitations and Problems to Avoid with Credit Card Processing and Merchant Cash Advance Programs
As with any successful business finance strategy, there will typically be only a small number of commercial lenders who are effective at implementing this working capital management strategy properly. There are also a number of problems to be avoided with business cash advance programs, so choosing the appropriate provider of this commercial financing service is extremely important to any business owner considering a credit card financing program.
Steve Bush and AEX Commercial Financing Group provide business opportunity loan help, commercial real estate financing advice and publish Commercial Mortgage Reports.
What Are The Benefits Of A Finance Major Over A Simple Business Administration Major?
Thursday, November 5th, 2009Trying to decide which major I want, I think I want to go into finance, but I am not sure. I know I am going into business- at a business school.
Also, if there are any people who have careers in finance, what do you specifically and do you like your jobs? Because I have an internship in finance and accounting and it is pretty boring…but it is just because they don’t give me enough work to do so I don’t feel like I have had the true experience.