Business Cash Advance and Business Financing Choices

Even though longer-term business financing 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 financing and commercial mortgage results for business owners. Short-term commercial financing choices can be misunderstood because of a preference by many business owners for long-term working capital management programs.

Two Important Short-Term Business Financing Choices

The most critical short-term commercial financing techniques typically include short-term merchant cash advance and credit card processing programs and commercial real estate loan programs. Both working capital management approaches are frequently a source of confusion for business owners.

Short-Term Commercial Mortgage Business Loan Programs

A long-term business loan is appropriate for many businesses that own commercial property. Business properties should normally be financed with a combination of short-term and long-term 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 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 is Short-Term Business Financing Preferable?

For business owners who expect to sell or refinance their commercial property within one to five years, it is especially advisable to explore short-term commercial mortgage loan programs. The most appropriate short-term working capital loan will have little or no prepayment penalties and "lockout" fees normally associated with longer-term commercial mortgage loans.

The avoidance of business loan 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 Mortgage Limitations

Substantial penalty fees will often be avoided with a short-term commercial real estate loan, but there are some important trade-offs to understand beforehand if a business owner wants a shorter-term commercial mortgage loan. When a short-term business loan is a possibility, the likely business financing will not include special purpose businesses such as funeral homes, the interest rate will frequently be in the range of 12% to 13% and the loan-to-value will typically less than 70%.

Primary Candidates for a Short-Term Business Loan

The most likely candidates for a short-term commercial mortgage loan are office, retail, multi-family, warehouse and mixed-use commercial properties. The time period typically covered by a short-term commercial real estate loan is six months to three years.

Fewer Lenders for a Short-Term Commercial Real Estate Loan

There are numerous problems to avoid with short-term commercial mortgage programs, so selecting a lender is critical to business owners wanting a short-term business loan. Unfortunately there are very few lenders who are capable of executing short-term business financing successfully.

Working Capital Management and Business Cash Advance Programs

Even successful business owners often require more business financing than they can obtain from a bank. For any business that accepts credit cards, working capital financing based on credit card processing is an effective but frequently-overlooked commercial financing tool. A relatively unknown commercial loan technique is probably the best business financing strategy to satisfy unusual cash requirements: using credit card processing to obtain a business cash advance.

The most likely candidates to benefit from this working capital loan strategy are retail stores, service businesses, restaurants and bars. This highly-effective working capital management strategy uses an under-utilized business asset (credit card receivables) to obtain business cash advances based upon a merchant's sales volume.

Credit Card Processing and Credit Card Financing

This business financing technique is called "credit card financing". Some business owners might have used a business loan technique referred to as "receivables factoring" to sell future receivables at a discount and receive immediate cash.

Very few retail and service businesses can properly document their accounts receivable to acquire business financing. Smaller service businesses and retail stores are not likely to have receivables for a business loan.

Businesses accepting credit cards have substantiated credit card sales volume. The documented sales volume becomes an asset to commercial financing for the business. A merchant cash advance up to $300,000 is available based on business sales volume.

The working capital loan time period covered by a business cash advance is typically 12 months or less. For businesses that desire to continue the merchant cash advance program beyond this period, it is usually an easy matter to get an additional working capital cash advance once the initial one has been completed.

Lender Limitations and Problems to Avoid with Credit Card Processing

There will usually be only a few business financing sources that are regularly successful at executing the credit card financing and credit card processing. There are key difficulties to avoid with a working capital cash advance, and selecting an effective funding source is essential to any merchant needing a merchant cash advance.

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

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