Commercial Loans - Types Available

In the world of commercial real estate, time is of the essence. Perfect timing may mean the difference in landing a great deal or losing out. Often, it is simply not feasible to wait for permanent financing to be put into place. In this interim, a bridge loan lender can insert a commercial bridge loan to secure the deal until permanent financing can be put into place.

Commercial bridge loans are exactly as their name implies, a way to bridge the gap between securing the property and securing it with temporary financing until more permanent arrangements can be made.

But this type of convenience does come at a price. Since these loans carry a higher risk, they will have a higher interest rates, points, and other additional costs associated with them. It is also common for these loans to carry a higher loan-to-value ratio, and it is common for them to have a balloon payment after a period of a few years.

In order for a lender to participate, they might require additional safety nets on their behalf. Cross-collateralization is one example where collateral for one loan is used for another loan's collateral. Another example might be what is called equity participation. In this scenario, the lender has the opportunity to retain part of the equity. Since they now have a vested interest in the deal, they have an additional incentive and are much more willing to approve it.

On a positive note, unlike the traditional method of financing commercial property, these loans are processed much quicker and require significantly less paperwork than their regular counterparts. This makes them much more appealing to investors and banks since you are dealing with a considerable amount of investment.

The appeal for bridge loans in the commercial industry is quite strong due to the positive effects they have. In this area of real estate, companies that are in a dire financial situation utilize bridge loans to temporarily carry them. This gives the company the additional time needed until an investor can be located so they may keep their doors open and continue business as usual. Without the convenience of these loans, they would likely go under.

Sometimes a commercial property is about to go under and offers to sell at a greatly reduced rate if a buyer can make an immediate offer to save them. This keeps creditors at bay, saves increased harm to their credit and helps to limit the damage that can be done to their credibility with others. A bridge loan in this situation would give them a quick buyout before their lender could require that the company's assets be liquidated in order to satisfy the debt.

Bridge loans are also used when companies are in the midst of private financing, or if a company is offering to go public. Since this time can be quite significant for the process to be completed, bridge loans give the company the needed injection of cash to carry them through this period.

Another popular way to implement their use is during a project's permit phase. Since there is never a guarantee that a project will receive the necessary permits that is needs to carry on the work, a bridge loan might be inserted during this lull in order to carry it until the official documentation has been obtained. Of course, as with any practice of lending the higher the risk, the higher the fees involved.

Commercial Financing for Your Small Business

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It's common for businesses of all sizes to experience fluctuations in cash flow from time to time. Small businesses, in particular, may experience variations in market demand that necessitate a loan. These can include cash loans in the form of overdrafts, lines of credit, and other types of debt. There are a range of commercial loans available to business borrowers.

Credit Cards

Credits cards should ideally be used only to fund short term needs or as a convenient payment method for businesses. Credit cards tend to have higher interest rates and are interest-free only until the next billing cycle. Businesses seeking short term cash finance should use an overdraft or a line of credit.

Leases and Hire Purchases

These are several of the most common types of commercial financing for cars, equipment, plant, and technology. Leases and hire purchases use the leased or hire purchased asset to secure the loan and so are very easy to obtain. The business makes regular payments, over months or years, often until they obtain full ownership over the product (hire purchases). In case of leases, the business usually has the option of purchasing the vehicle or equipment at the end of the agreed lease term, for a sum set by the lease company. There are different tax implications for items bought under a lease and hire purchase agreement that businesses should stay aware of.

Overdraft Facility

Overdraft facilities are very common for businesses. They are attached to business accounts and come with a limit, known as an "overdraft limit." Lending banks and institutions may conduct a credit assessment and ask for some form of security. An overdraft facility is one of the fast loans, an easy option that can be accessed, once the overdraft is approved, without further authorisation and used much like a debit account as long as the limit isn't exceeded.

Line of Credit

Lines of credits are secured by a mortgage over a property, which can be your office or place of business. Lines of credit tend to have more attractive (lower) interest rates than overdrafts as they are always secured, while offering the same level of flexibility. However, unlike an overdraft, repayments that cover interest payments and associated fees must be made periodically.

Fully Drawn Advance

Fully drawn advances provide upfront financing, usually larger amounts. These advances are often used for funding longer term outlays such as capital expenditure (equipment) and investments, and are not designed for short term needs. They come with scheduled repayments for both interest and principal, and are secured with a mortgage over a property or commercial asset.

An example of a fully drawn advantage is a business home loan, where business owners can certify their own income and borrow against the value of their personal home. Borrowers can borrow in their own name, the company name, or under some other legal structure. Borrowers can borrow as much as 80 per cent of the value of their home.

Debtor Financing

It is also common for some businesses to obtain finance by securing a loan on the total amount owing to the business by customers as identified by their accounts receivable ledger. Usually the loan amount can be up to 80 per cent of the total amount owing. This is a short term financing option that allows businesses to receive needed funds well before customers make payment and assists with smoothing out the invoice cycle. It's highly flexible and tied to the amount of business or sales made by the business.

Car Wash Loans - What Is The Best Type Of Car Wash To Buy Or Build

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If you are looking to buy or build a standalone car wash, here are some things to consider. First of all, 65% of all car wash facilities are at gas stations and convenience stores. Approximately 25% of all petroleum sites have one and most oil companies now will not build a new store without a car wash. The majority of them are the rollover type washes that you either receive a free wash or a reduced price wash after a fill up of your fuel.

When referring to building or buying or refinancing a car wash, for all intents and purposes, we are referring to tunnel washes, whether they are full service or exterior tunnel washes. There are approximately 20,000 tunnel washes in the country. The obvious difference would be the average labor costs at an exterior car wash compared to a full service facility. The average "full service" car wash has 14 employees as opposed to an exterior car wash that averages four employees. The full service usually enjoys higher revenues and obvious higher labor costs. At the full service tunnel washes, you can also have auto detailing that usually has very good profit margins. The average tunnel wash costs $2,000,000 to build (excluding land costs) so you need to be generating good revenues to service the debt on this.

Many of the "rollover" or "In-bay Automatic" auto washes are at gas stations and convenience stores, although you do see isolated standalone rollover car washes. More In-Bay/Rollover car washes exist than tunnel wash and self-serve washes combined

Many of the tunnel washes are being done SBA 504 and SBA 7(a). The reasons for this are obvious. SBA usually offers a higher advance and frequently will finance working capital and inventory that offset the lower origination and lower rate of conventional financing. It is hard to argue with the fixed rates available with a SBA 504 loan. If you add soft costs to your project it makes it difficult to beat.

From a financing point of view, many of the same criteria apply to financing (existing or ground-up construction) of a auto wash facility. If you are well capitalized and have sufficient equity into the transaction, have industry experience, have acceptable credit and the site cash flows or the potential site has a market there, your chances are good that you will obtain financing. As with all loans, PACKAGING IS HALF THE BATTLE. A good business plan with realistic projections and accurate assumptions will go a long way. Underwriters do not like to have to figure things out. They like to have it laid out in a well thought out presentation. The fewer questions an underwriter has, the more likely your deal will be approved.

Business Loans Are Not Hard To Get

There has been a tremendous amount of talk in the media over the last few years about how small businesses cannot access business credit (loans, lines of credit, working capital advances or business credit cards).

In fact, several small business associations claim that 41 percent of small businesses cannot access business credit or business capital.

I say they are wrong. What they are actually saying is that they cannot access business credit on the terms they want or in the form they desire.

Clearly, getting a business loan in 2004 through early 2008 was a lot easier than it is now. But, what really happened was that business loan underwriting standards where drop or lessened - allowing individuals and business owners, many of who should not have gotten credit in the first place, to obtain risky loans - loans that were not repaid and could have never been repaid; very similar to what mortgage banks and mortgage brokers did with home loans.

They underwrote risky loans just to collect origination and processing fees then sold those loans off to investors (again collecting additional fees) - holding no risk in the end. What this did was put a lot of unnecessary toxic business credit in the market - loans that should not have ever been made.

Think about it this way. Let's say that on a scale of 1 to 10 based on a loan difficulty - with 1 being the easiest option of obtaining a business loan. Prior to 2004 - business loans had a number of about 5. They were not easy to get or hard to get. Banks just followed standard loan underwriting protocols. Thus, those who should get business loans did and those who shouldn't - didn't. At that time, underwriting was based on costs of funds and risk of repayment.

But, when congress open the secondary market for these loans (just like they did for secondary home mortgage loans with Fannie and Freddie) - banks realized that they could quickly collect underwriting fees then pass off those loans without assuming any risk. Based on this (just like with the housing market) - they lowered their underwriting standards (why not as they had no risk - it was all up side for them). Thus, the difficulty number for business loans dropped from 5 all the way to 1 (where anyone could get a business loan regardless if they qualified or not).

Therefore, for years, business owners were able to quickly and easily get business capital if they were willing to pay the bank's or lender's fees.

Now that the market collapsed, the difficulty number for business loans has once again returned to its normal position of 5 - making them not easy or hard to get.

The 41 percent who claim that they cannot access business credit today are the ones who should not have gotten credit in the first place.

The bottom line is that business loans are not hard to get - they were just really easy to get a few years ago and have now resorted back to where they should be on the difficulty scale.

To obtain a business loan today - you must first understand why your business needs outside capital (it has to be for growth - anything else is wasted money) and then understand how your business, as it stands, can leverage itself to obtain those funds - there are as many ways to obtain business capital [out] as there are request and each one is no harder than it should be.

To obtain a business loan today - you must first understand why your business needs outside capital (it has to be for growth - anything else is wasted money) and then understand how your business, as it stands, can leverage itself to obtain those funds - there are as many ways to obtain business capital as there are request and each one is no harder than it should be.

Business Loans - Finding Financing Fast

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Most business owners who are in need of a quick loan often make the grave mistake of approaching unscrupulous loan brokers and agents who will offer them quick loans at atrocious interest rates. The truth is that there are ways to get a loan quickly and affordably. You just have to think outside of the box.

Ask business owners what their impression is of commercial finance and you will get a host of answer. The one factor that is almost always mentioned is the time involved. Commercial banking is not a quick process. The idea of doing a loan in 30 days is laughable. If you need money quick as a business owner, you need to look to alternatives. Let's take a look.

Personal loan with collateral - If you have a decent credit score and are willing up to put up collateral, banks will offer you reasonable amounts of cash as a loan that will be processed quickly. Unlike business loans with a long application process, secured personal loans will usually go through a quick approval process. The very big downside is you are now on the hook for the loan and essentially waive any protection from incorporating.

Accounts receivables loan - We've all been in the unique position of being receivables rich, but cash poor. Our dearly beloved customers owe us money, but haven't paid or aren't due to pay for net 30 or 60 and we need money NOW! The Accounts receivable loan is one way for dealing with this. Commercial banks and brokers offer them. The costs can be high, but the cash flow relief is usually worth it. The same is true for factoring receivables as well.

Even if one plans on applying for a loan using routine procedures, they can speed it along by providing the right documentation that will quicken the loan approval process. You must also be able to meet several conditions and present your case clearly so that the bank is quickly able to realize that you have good credit worthiness. Some of the documents and factors that will help establish your credit worthiness are

• Consistently good credit history and credit score, both for your business as well as personal accounts.

• Good financial statements on the business that will show the business as a profitable one.

• Collateral assets and necessary proof to show ownership of proposed collateral

One will usually see a quick approval process for smaller loans where the requested amount is typically lower than about $50,000. Some businessmen make the mistake of asking for more than what they need which will lead to a rejection or a very long approval time where the bank checks your requirements for the funds. Stay within your means, provide supporting docs and you should be in great shape.

Bridge and Hard Money Trends for 2011

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Bridge and hard money lending is back! Since the collapse of Lehman Brothers over 29 months ago, this class of loans was available - but nearly impossible to actually close. The reason was simple: very few properties and projects had a viable exit strategy. Now that private lending and conventional lending is back and truly available, the private money world is much more comfortable lending money and knowing there is a high probability of the borrower being able to retire the debt through another funding source.

In the past, the hard money world was dominated by 10 or 12 major nationwide players. Out of the collapsed market, I have found more than 30 major players with cash on their books and a very eager spirit to lend. What has changed for 2011, however, is the scope of their lending footprint. Most of these private funders want to stay within a 200 to 300 mile radius of their offices. Why? Because they simply do not have to go far to find great properties that fit well within their "strike zones". Further, they are more comfortable lending in their own backyard rather than pouring their capital into an unfamiliar market.

Besides being much more regional in their funding behaviors, you can expect them to be more aggressive in making sure their capital is returned. Most of these lenders have no interest in acquiring the subject property. They simply want to make money on the loan and move on to the next transaction. To ensure the borrower is motivated to retire the debt, the private money lenders are universally asking for some type of cross-collateral. Lastly, a borrower must absolutely have a rock-sold exit strategy. Unfortunately, the sale of a property is not an acceptable exit strategy for most loans in the class for the year ahead.

If we can be of any assistance to you in placing and structuring your short term commercial loans, please do not hesitate to call us at the number below.

Asset Financing - Does Your Firm Have What It Takes For An ABL Facility With An Asset Based Lender

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You're on the hunt, and the prey is business financing under an asset financing scenario you have heard so much about. Let's examine what an ABL facility is, who is the asset based lender that offers this financing, and, oh yes, do you qualify?

To say that business credit financing is top of mind these days with Canadian business owners and financial managers is clearly an understatement. With the economic clouds clearing on the horizon after the 2008-2009 business credit meltdown business owners are looking for growth financing.

And the reality is that the type of operating facilities that you are looking for are getting tougher to secure from Canada's major chartered banks. We are of course referring in general to firms that have some sort of challenge, because medium sized and large Canadian firms with great balance sheets, profits, and solid cash flows can access great credit terms from the banks.

Unfortunately that isn't the client profile we're talking to everyday - as owners we meet have challenges such as inability to secure the operating cash they need, the requirement to acquire additional assets, or even a full acquisition of a competitor. And that economic turbulence we mentioned earlier usually means that many firms are coming out of a turnaround type environment and are slowly getting their financials back in order. Therefore the ability to secure an ABL facility (abl = asset based lending) for inventory and receivables becomes the goal in asset financing.

So what is the real difference in asset financing under and abl facility compared to a bank line of credit, commonly called a ' revolver ' in business finance. The best way we explain it to clients is that the bank focus is on cash flow, the asset based lender focuses on assets. Big difference!

So, does your firm qualify for abl financing? In general, as we stated, any firm with assets of receivables, inventory, equipment and real estate qualifies. Where the challenge comes in is deterring the overall quality of those assets as well as the size of the facility. An ABL facility is generally available for any firm with over 250k in a combination of receivables, inventory, and equipment. In certain cases even tax credit receivables can be financed.

Where you as a business owner have to focus is the choice of a partner in this type of financing. If your facility requirements are in the millions of dollars and you have high quality business assets (i.e. collectible receivables, inventory that turns) you can access significantly more credit than under a normal bank facility - at rates commensurate with bank financing.

Small firms pay a premium for this type of facility, but when you consider you can access almost all the business credit you need under such a line of credit, coupled with the ability to grow profits and revenues and take on additional orders... well, we'll let you decide if that's worth a premium.

If you want to comfortably walk the business financing minefield in ABL and feel you aren't 100% conversant with the players, requirements, and pricing then consider seeking a trusted, credible and experienced Canadian business financing advisor in this area.

P.S. If you found your access to business credit has just doubled, don't say we didn't tell you!