jeff rauth asked:

Restaurant owners have limited options for commercial mortgages, relative to other businesses and building types.  One of the most common options is the SBA loans.  Although not perfect, they can be a viable option.  For one, they are still reliable and are still closing.  Two, they do offer some of the lowest fixed rates available and the highest level of financing for restaurant loans. 

 

Interest rates for restaurant loans are currently in the mid 6%’s to mid 7%’s depending on the particulars of the transaction.  Combine that with 85% financing on purchases AND 85% financing on refinances and it is easy to see why the SBA has had such a huge impact on American Small Businesses. 

 

Compare that to traditional bank financing, rates are about the same, but you would have to come out of pocket 30-40% of the purchase price.  Refinance financing is more limited and harder to close and loan to values are normally capped at 50-60% as well.  Again with the SBA programs you can go up to 85% loan to value on refinances on restaurant loans.   

 

The SBA programs have received a lot of criticism over the years, some of it warranted, some of it not.  One of the biggest complaints is the time frame and bureaucratic process.  A key to avoiding the long delays is to work only with PLP lenders.  If you do not your loan will have to be underwritten and approved twice, once by the funding bank and secondly by the SBA.  If you work with a PLP lender the loan will only have to be underwritten once, and you will avoid at least one month of delays.  It is common to close SBA loans in 60 days which is right in line with all commercial loans. 

 

Another major criticism is that the fees are excessive.  The SBA 7a loan normally has a 2.75% front end “SBA Guarantee Fee” and the 504 has a 2.5% fee for its half of the loan.  However it is important to realize that not all lenders and the way they structure deals are the same.  For example we work with a bank that will absorb/pays for this fee for the borrower.  So the borrower gets all of the benefits of a long term fixed rate loan with zero fees. 

 

In terms of fixed rates it depends on how the loan is structured.  With the SBA 504 you can easily get 7 to 10 year fixed rates, with 25 year amortization schedules.  With the SBA 7a most are floating, however it can be offered as a 3, 5 and though rare, 10 year fixed rates.  We are currently working with two banks that offer the 7a as a 5 year fixed loan for restaurants.   Again, as a comparison most bank financing will not exceed 3 -5 years, and the amortization schedules rarely exceed 20 years with loan to value restrictions at 50 060%.  

The SBA programs can provide a lot of flexibility compared to conventional bank financing.  Again, keep in mind that not all lenders/banks that use the SBA guarantee are the same.  So, if you have been turned down by a bank that offers SBA loans, it does not mean that you are ineligible for SBA financing, it may just mean that the actual funding bank, didn’t like your deal.   The SBA is not the lender, they are guaranteeing the loan for the funding bank in case of borrower default.  At the end of the day the bank is still on the hook for the loan and banks appetite for deals and guidelines vary widely.   And the way that banks structure the loans vary as well.  Again, for example 99% of banks offer the 7a as a floating rate, we however have access to a 5 year fixed, 7a program. 

 

 

 

 

Wade Henderson – very Professional – 15 yrs in the Business Finance Field – reputation for getting the deal done. IMMFinancial.com factoring and invoice discounting accounts receivable loans invoice factoring companies factoring of receivables factoring money government factoring account receivable factor business receivable factoring asset based factoring medical receivable factoring

Stephen Bush asked:

With the increasingly chaotic investment climate for residential financing in the United States, more residential real estate investors are exploring commercial property and business finance opportunities. It is important for prospective business owners and investors to educate themselves about options for the business loans and commercial mortgages they will be needing.

Environmental requirements for business finance will be a complex issue for numerous business investments. Environmental issues involved in a business loan will primarily depend upon the commercial lender as well as the type of business. More extensive requirements can impact both the cost and timing for a commercial mortgage loan.

Tax returns and financial statements for a business loan are likely to be a concern for all commercial borrowers. Whereas residential mortgage financing is likely to involve only personal tax returns, most business financing will include a review of business tax returns as well. Business financial statements and personal financial statements will be required for certain kinds of business opportunity financing and commercial real estate financing.

Secondary financing will often be a means of acquiring desired commercial loans. The use of seller financing or secondary financing is a prudent business financing strategy to reduce capital requirements for the borrower. Secondary financing will not be accepted by all commercial lenders.

An unexpected requirement for many commercial loans involves sourcing and seasoning of funds. When purchasing a business, some lenders will require that borrowers document where the down payment is coming from (sourcing) and how long the funds have been in that location (seasoning). If a borrower cannot adequately provide this documentation, the choice of commercial lenders will be more restricted.

Collateral and cross-collateralization for business loans will be an insurmountable obstacle for some commercial borrowers. Collateral requirements for business financing will depend on many factors such as down payment, type of business, credit scores and the type of financing needed. Cross-collateralization refers to lender requirements involving personal collateral such as a home used as collateral for a business loan.

Any requirement for a business plan when obtaining commercial mortgages is likely to be expensive and time-consuming. A business plan is not always required for a business loan, but when one is required this will add significantly to the cost and length of the loan process.

An increasing problem for commercial borrowers seeking refinancing is an unreasonable limitation for getting cash out of the new loan. Commercial lenders differ significantly regarding restrictions imposed on the amount of cash out to the borrower when refinancing. Some lenders will not permit any cash out whatsoever while others will limit cash received by the borrower to a particular amount. The preferred approach is to use a lender that will allow cash to be paid out up to an agreed loan-to-value (frequently 75%).

It is important to to thoroughly analyze business financing lockout penalties. A lockout penalty is much more severe than a prepayment penalty in that such penalties can effectively prevent a commercial borrower from selling or refinancing during a prescribed period (often two to five years).

In addition to the issues noted above, numerous other key business finance and real estate mortgage issues will also be important to evaluate. Commercial mortgage requirements are very different from residential financing requirements in the United States. We have prepared several other business finance overviews addressing additional factors that will be significant for most commercial borrowers. Separate report topics include SBA loan refinancing, business opportunity financing, stated income business loans and commercial appraisals.

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Aidan Kellsey asked:


Short-term Commercial Financing Options After Your Commercial Mortgage

To buy warehouses, buildings, and operations centers, business utilize commercial mortgages. Businesses are likely to need funds for other expenses in its operations and commercial mortgage will be unable to accommodate these. Businesses have several options and chances for finding funding from various sources of commercial financing that is on hand.

There are 3 types of commercial financing loans: long-term, medium-term, and short-term. Short-term commercial financing options on hand will be discussed here.

With a maximum term of only one year, short-term loans are very common. Some common types include:

1. Operating Loan. This is for a business’ different operating expenses. Though some lenders give extensions, full settlement is needed at the end of the usual 3-6-month terms.

2. Business Line of Credit. This is a very popular commercial financing type and is offered by banks for 24 months. Just like a credit card, a business can borrow from an imposed credit limit.

3. Business Inventory Loan. Business inventory loans have terms of normally between 6 and 9 months. Funds are provided for the purchase of seasonal supplies. Proof that they will be able to repay the loan and that it’s seasonal are needed by banks and commercial lenders from the business.

4. Accounts Receivable Financing. In accounts receivable financing, companies put up receivables as a collateral for the loan. Collateral is chosen among certain receivables. The loan is assessed upon 60% to 80% of the receivable’s value and must be settled when the product is sold.

5. Factoring. A business can sell its receivables to a factor who takes over the danger and provides discounted but immediate funds if the business does not qualify for an accounts receivable financing loan. The factor is paid by the end-customer. This is a very costly option.

6. Letter of Credit. If a business doesn’t have the funds to purchase supplies and inventory from a vendor, a letter of credit is issued. If the businesses cannot pay the vendor, the bank will guarantee settlement, charging a percentage point rate on the funds.

More than the typical commercial mortgage, these are only some short-term commercial financing products. Commercial mortgages are perfect for the purchase of commercial properties, but there are various other commercial financing options and products beyond commercial mortgages.



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jeff rauth asked:

Currently we are seeing decline rates at, literally 90%, from banks here in Michigan. Meaning that 90% of all commercial loan request that come in the banks doors are being turned down. 50% – 60% of these potential commercial mortgages probably make sense from a traditional underwriting perspective, but the banks are not willing to take the chance as loses continue to rack up and take their toll. Several nationally and smaller local banks have simply stopped quoting rates and will not accept new loan submissions altogether. One particular bank here told all of their commercial loan officers that the bank will not close a single commercial mortgage in 2008 – like it or not.

Borrowers need for commercial mortgages have obviously not gone away either and probably has increased as business look for ways to consolidate debt, launch new marketing programs, etc in an effort to make it through the current “cycle”. Business owners are definitely starting to feel the pinch and are looking at all option that might have not been considered just a few months ago. All in all borrowers are relearning the age old “golden rule” that has seemed to be gone for many years – that is “he who has the gold, makes the rules.”

The SBA commercial mortgage programs might be the answer for many business owners. Because the government guarantees a large portion of the loan it becomes a much safer loan for the bank. For example, on the 504 SBA program the government essentially guarantees 40% of the loan so the bank’s loan to value is at a very conservative 50% (the borrower puts in 10%). On the SBA 7a program, Uncle Sam essentially guarantees 75% of the loan amount, making this a solid option for the lender as well.

However, from the borrower’s perspective these loans are not perfect. One of the biggest criticisms is the lack of refinance options. Businesses have to be in a mortgage that is roughly 2% above market to qualify for a refinance and any cash out portions are heavily controlled. In addition the 504 program only allows purchase transactions so the borrower normally has to “swallow” the 7a terms or might have to get on without the refinance.

The 7a program has been shunned by many for 2 main reasons 1. The guarantee fee, paid to the SBA (out of loan proceeds) is expensive at 2.75% of 75% of the total the loan balance and 2. That the rate floats over prime, adjusting once per quarter. The floating component, which can be a very scary proposition for most business owners, has been the biggest issue.

It pays though to be informed. Not all SBA lenders are the same. For example we work with 2 banks that allow 7a refinances up to 90% loan to value and lock the rate for 5 years and the bank absorbs the 2.75% guarantee fee… Making this one of the strongest programs in the nation.

The SBA program will likely remain the shelter of the commercial mortgage industry as Wall Street goes through the restructuring of the CMBS and CDO markets, which, no doubt will be painful for all involved.

Wade Henderson – very Professional – 15 yrs in the Business Finance Field – reputation for getting the deal done. IMMFinancial.com factoring specialist accounts receivable factors factored accounts receivable receivables factoring company accounts recievable factoring factoring and accounts receivable accounts receivable factoring companies sell invoices olympic credit fund factor recievables