It is very easy for borrowers to overlook short-term choices for commercial loans. With an economic recession impacting business activity adversely, all working capital financing options should be thoroughly evaluated. This article will describe alternatives such as short-term commercial mortgages and business cash advances.

Due to misunderstandings about long-term commercial financing, short-term commercial loans are often not considered properly. Although long-term commercial real estate financing options are often appropriate, there are practical short-term business financing choices that will be more workable and profitable for commercial borrowers.

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 funding approaches are frequently a source of confusion for business owners.

An underutilized commercial financing strategy for businesses is possibly the best commercial loan strategy to secure cash for their business: a business cash advance using credit card processing. Credit card financing is an effective business financing tool that is usually overlooked by any business accepting credit cards as a customer payment method.

Service businesses, restaurants and retail stores are the most likely candidates to benefit from this working capital cash management strategy. This funding strategy uses an under-utilized business asset (credit card receivables) to obtain business cash advances based upon sales volume. This working capital cash strategy is also known as credit card factoring. Some business owners have used receivables financing or factoring which allows them to sell future receivables on a discounted basis.

Not all service and retail businesses can document business receivables to obtain a commercial 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 activity. It is this documented level of credit card sales activity that becomes a financial asset to the business and its working capital management strategies. Business cash advances from $5,000 to $300,000 can usually be obtained based on a merchant’s sales volume and future sales.

The commercial financing repayment requirement for working capital advances is normally under 12 months. The arrangement can be renewed for merchants that need the business cash advance program for a longer time.

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

A long-term commercial mortgage 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 real estate loan 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 commercial 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 strategies.

It is prudent to explore short-term commercial loan choices for business owners who want to refinance or sell the property within a short time frame. Appropriate short-term commercial mortgages will have more reasonable lockout fees and prepayment penalties than typically required with long-term commercial real estate financing.

While we will not attempt to describe the technical aspects of commercial loan prepayment fees and lockout fees in this article, we will note that the absence of such fees in most short-term commercial mortgage loan programs is a very positive aspect of these short-term working capital management options. The lack of such penalty fees could easily translate to a savings of 10% to 30% or more if a business owner needs to sell their commercial property during the time period which would have triggered prepayment fees and lockout fees in traditional longer-term commercial real estate loans.

Although prepayment and lockout fees will typically be avoided with short-term commercial mortgage loans, there are some trade-offs to be made if a business owner selects shorter-term working capital loans. When short-term commercial mortgages are available, they will usually not be readily available for special purpose commercial properties, the interest rate will frequently be in the range of 11% to 13% and the loan-to-value will typically be under 70%.

Multi-family, warehouse, mixed-use, office and retail commercial properties are the best candidates for short-term business finance options. For a typical short-term commercial loan, business owners should be comfortable with a time period of less than three years.

Few commercial lenders are capable of successfully executing short-term business financing. There are also 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 involving commercial property.

It is sufficiently important to repeat that a vital key to successful short-term commercial loans and business cash advances is selection of an appropriate lender. Despite the potential benefits of shorter-term business financing, the choice of a lending source cannot be overlooked.

In general, debt financing involves raising money for business purposes in exchange for promised principal and interest payments. There are multiple types of debt financing available to commercial real estate and other business owners from a variety of lenders, including banks, pension funds, insurance companies, and other financial institutions. Each type of debt has its own function, terms, risk, cost and maturity. The job of the financing experts at Remington is to work with both sides of a commercial transaction to creatively mix and match these options with the interests of all the parties in ways that will secure the best possible rates and terms consistent with client needs and market conditions.

In the typical capital structure for commercial real estate, senior debt usually accounts for 50-70% of the capital stack. By definition, senior debt is just that. It is senior to equity and all other forms of mezzanine (junior, subordinated) debt. As such, senior debt stands first in line before all other creditors for interest and principal payments and, in the event of liquidation, the repayment of debt. Most senior debt on commercial real estate is amortized over 15 to 40 years, with interest rates, either fixed or floating. Rates tend to be based on the quality of the collateral involved and the propertys historic cash flow, with higher rates tied to the degree of risk involved.

Many commercial real estate loans mature in three to ten years, resulting in a balloon payment at the end of the term. Remington professionals are equally adept, however, at securing financing across the capital stack for virtually any business purpose, with or without the involvement of real estate, including loans for expansion, working capital, operating capital, investment capital, etc.

By and large, asset-based business loans have lower interest rates than unsecured loans and may be tied to the particular asset being purchased or other assets of the borrower.

Fixed Rate Loans: Fixed rate loans offer borrowers an unchanging rate of interest, with predictable payments for the life of the loan. Because of strong relationships with public and private sources of capital, many opportunities exist for the financing experts at Remington to negotiate with lenders on transaction terms for such loans, particularly interest rates, as well as maturity and prepayment penalties. All of which assures Remington clients of the best possible and lowest-cost financing package available.

Floating Rate Loans: Floating rate loans are typically tied to the London Interbank Offered Rate (LIBOR) plus some point spread over the base rate. Attractive to borrowers with a two-to-four year financing requirement, floating rate loans are adjusted periodically, have minimum or no prepayment penalties, and cost less than fix rate loans because of the risk of rising interest rates. This type of loan has been particularly popular of late because of the historically low interest rates experienced in recent years. Remington professionals are highly experienced in securing such short-term financing or employing it as an integral part of a longer-term overall financing strategy.

Construction Loans: Commercial construction loans typically are short-term loans used to finance the cost of building new warehouses, industrial buildings, retail centers, apartment complexes or other properties destined to be sold or rented to others or operated by the owners. These loans tend to be varied, depending on the project, construction time, and borrowers experience. They are meant to be paid off when construction is completed and a certificate of occupancy issued. Borrowers usually require another mortgage to pay off the construction loan when it comes due. Thus the overall process may entail two loan applications with their associated fees and closings a potentially complex and time-consuming process that the experienced financing professionals at Remington can coordinate, facilitate and expedite. For more information on construction loans click here.

Bridge Loans: The bridge loan is a form of financing that bridges the gap between funds needed now and when longer-term financing becomes available. It can be a key component in an owners long-term financing strategy, particularly for those faced with a here-and-now opportunity or other situation, such as improving or selling a property.

Real estate owners often come to Remington to help secure a bridge loan to purchase a second property before the sale of the first property closes, with proceeds from the sale used to pay off the bridge loan. This illustrates the important exit strategy borrowers must have before an investor makes a bridge loan. In the foregoing example, the investor would need to see a signed sales agreement spelling out where, when, and how the bridge loan will be repaid.

Bridge financing almost always needs to be arranged and closed quickly. Such loans tend to be for 6 to 12 months with a possible 12-month extension. They are usually structured as simple interest only loans with no pre-payment penalty and all principal due in full at maturity. Risk to the investor is minimal since the loans are underwritten based on existing equity in the property and a defined exit strategy.

Because of the owners need for timeliness, banks and other institutional lenders are not usually effective when it comes to bridge loans. That is why the Capital Markets Group at Remington provides access to investors capable of making on-the-spot decisions. Included among these investors are hedge funds, private equity groups, mortgage pools and other sources of private capital. For information on hard money loans, another type of short-term loan, click here.

Hard Money Loans: There is another type of short-term loan that is similar to the bridge loan in some ways but substantially different in others. It is called the hard money loan. Hard money loans and bridge loans are similar in that both types can be quick to close. Both may be needed for a short period of time. And both undergo limited or less severe underwriting processes. But, while the bridge loan investor requires a definite exit strategy, the hard money source may not. Moreover, bridge loans frequently have a loan to value ratio of 70-95%, whereas hard money loans will not exceed 50% LTV.

Hard money loans also are generally more expensive. Unlike bridge loans, which focus on exit strategy, hard money investors emphasize collateral, making certain enough collateral exists to collect the debt in the event of default. Because the two types of loans have similarities, borrowers frequently misjudge which is best for them. More than three-fourths of those who say they want a bridge loan qualify only for a hard money loan because, for example, the borrower has less-than-average credit, a modest financial statement, too little experience in commercial real estate, or no defined exit strategy. The financing experts at Remington can quickly sort out any such confusion and quickly align the client with the appropriate type of financing and related investor.

You have found the car that makes your heart race by 120 beats per minute. Now only one thing stands between you and the car of your dreams: financing the purchase. In a perfect world, you would pay the full price in cash without blinking. But if you are like the seven out of ten car and truck buyers who don’t live in a perfect world, chances are you would be paying for your car through one of several financing schemes.

Understanding the basics of each car financing option is key to choosing the automobile financing strategy that best suits your situation. Here is an overview of auto financing options that may be available to you.

Auto Loans from Lending Institutions

You can get a car loan from a bank, credit union, or other lending institutions. The car that you purchase will serve as collateral for the auto loan. This means that the lender can repossess your vehicle if you default on the car loan. Auto loans are a popular car financing option because they generally offer reasonable interest rates and are relatively easy to get.

Two factors are likely to affect the total cost of the car loan. One is the term or duration of the loan. Generally, the longer the term of the loan, the lower your monthly installment will be. But you will end up paying more towards interest and this will increase the total cost of the auto loan. If you can afford it, get a short-term loan. Your monthly installment will be higher, but you will be paying less money over all. The second factor that may affect the total cost of your car loan is your credit rating. Creditors with less-than-stellar credit history are usually charged a higher interest rate because of the elevated credit risk.

How can you put a limit on learning more? The next section may contain that one little bit of wisdom that changes everything.

Dealer Financing

Like traditional auto loans, dealer financing is reasonably easy to get. Most dealerships have relationships with numerous lending institutions, so they can arrange car loans even for car buyers with blemished credit histories. To compete with traditional bank loans, many dealerships offer zero percent or very low interest on dealer loans. However, such loans are available to car buyers with stellar credit ratings. Consumer experts advise car buyers to get pre-approved on an auto loan from a bank or credit union before approaching the dealership for possible financing. By getting loan pre-approval from another lending institution, a car buyer gets the upper hand when bargaining for a lower rate on a dealer loan.

Home Equity Loans and Home Equity Lines of Credit

If you own a home and have accumulated substantial equity on your property, then you may consider getting a home equity loan or a home equity line of credit. Home equity loans are fixed or adjustable rate loans that you repay over a predetermined period. Home equity lines of credit are open-ended, adjustable-rate revolving loans with a maximum credit limit based on the equity of your home. Home equity loans tend to have lower interest rates than credit cards and other types of personal loans. Interest payments on home equity loans may also be tax-deductible up to a certain extent. Home equity loans and home equity lines of credit use your home as collateral, so make sure you are financially capable of paying the monthly installments if you don’t want run the risk of losing your home.

Credit Cards

A credit card advance or credit card draft from your credit card company can help you drive your dream car home. Like home equity lines of credit, credit card advances or credit card drafts are revolving lines of credit with variable interest rates. To entice existing customers to avail themselves of credit card drafts, credit card companies waive cash-advance fees, guarantee low rates during the initial period of the loan, or offer high credit limits. However, because credit card drafts are unsecured, they generally have higher interest rates than home equity loans, traditional auto loans or dealer loans. Financing your auto purchase through credit cards could also leave you vulnerable to hefty penalty charges if you make a late payment or exceed your credit limit.

You can’t predict when knowing something extra about automobile financing will come in handy. If you learned anything new about automobile financing in this article, you should file the article where you can find it again.