Commercial Financing Options
Commercial Financing Options Credit Lines Under a line agreement, the lender supplies a business with funds intended to ll temporary shortages in cash that are brought about by ming di erences between outlays and collec ons. Typically used to nance inventories, receivables, project or contract related work. Short Term Loans Short term loans are used for seasonal build-ups of inventory and receivables. Generally they are repaid in a lump sum at maturity, made on a secured basis and are for a term of a year of less. Asset Based Loans A lender advances funds based on a percentage of your current assets. The is loan used as source of funds for working capital needs. A lender typically takes a security position in the assets owned by the business. Contract Financing Funds are advanced to you as work is performed. Payments by the contrac ng party are generally made directly to the lender. Factoring Factors actually buy your receivables and rely on their own credit and collec on exper se. Essen ally, your customers become their customers. Factoring is used by rms who are unable to obtain bank financing. The cost of financing is usually higher than other forms of S-T financing. Term Loans Term loans are used to finance your permanent working capital, new equipment, buildings, expansion, re nancing, and acquisi ons. Commercial banks are the major source of funding. The term of the loan is based on the useful life of the assets being nanced or collaterized. Your projected pro t and cash flow are two key factors lenders consider when making term loans.
Commercial Financing Options Equipment and Real Estate Loans Loans are fully secured by the equipment being purchased. Typically banks loan 60-80% of the value of the equipment and is repaid over the life of the equipment. Lenders make long term loans secured by commercial and industrial real estate . The loan is usually made up to 75% of the value of the real estate to be nanced. Repayment terms range from 10 to 20 years. Lenders also make second mortgages on real estate. The amount of the second mortgage is based on the appraised mortgage value and the amount of the rst mortgage . Leasing Leasing can be accomplished through a bank, leasing or nance company. Your business will be subject to the same type of review as when seeking a loan, speci cally cash ow of company, value of lease object and useful life. Lease terms range from 3 to 5 years. At the end of the lease, there are generally 3 options: purchase, renew and return. 3-15 YR Balloon Loans Balloon loans interest rates that are xed for a period of years. Typically these loans are pegged to a treasury index. Terms are for 3, 5,7,10 or 15 years. The amortization schedules are generally for 20 or 25 years. When a balloon loan matures at the end of the agreed term, the remaining principle balance outstanding is due at that me. The borrower can pay o the loan by either selling the property or re nancing. Investment property is typically owned for a previously de ned period of me. Analyze your investment strategy before securing a balloon. Having to redo a loan is expensive.
Commercial Financing Options Adjustable Rate Loans An adjustable rate loan will typically fully amor ze with no balloon features. These loans may or may not have adjustment caps. The rate is determined by an index plus a margin. The indices used are generally U.S. Treasury bond rates. Rates are adjusted at a certain point in me using either the current rate of the index in ques on or the average of the index for the prior year. In either event, the index used will correspond to the adjustment term. If the loan is a three year adjustable, then the index used should be the three year treasury index. Some adjustable rate loans are xed for an ini al period of years and then will adjust a er that period. For example a 5/1 adjustable is xed for the rst ve years and there a er will adjust each year. The index used will be the one year treasury rate. Please note, that commercial lending is not standardized as it relates to programs and to guidelines. Banks must meet certain federal standards, but the index, margin, amor za on, term and fees are components that are controlled by the investor based on their risk profit analysis. Remember that this mortgage will be the greatest expense your investment property will be responsible for. As such we recommend that you consult your real estate agent and your loan o cer to assist in providing you with all the information needed to make a complete and accurate choice.
Commercial Financing Options