Loans, Insurance & credit card information

If you’re in the business of originating commercial loans, you know how important it is to protect yourself. A commercial loan fee agreement is one of our most important tools. Going through the long and difficult process of underwriting and closing a commercial loan all to not get paid or only collect a portion of what you expected is one of the more painful and disappointing experiences you can go through in this industry.

We know. We have had several situations where we didn’t get paid, only got a portion of what we were told or did collect our fee, only after getting an attorney involved and going through a long and draining process.

Putting together a deal after hearing the funding bank saying something like “oh, we don’t have formal agreement with brokers, but we’ll pay you a point outside of closing” is like hoping to get paid back that $500 loan you gave to your high drop-out cousin. Sure, there is a chance you’ll get paid back.

Or if you’re working on a deal and not expecting to get any YSP from the bank and you’re depending on the borrower to finally sign that fee agreement, after they know who the bank is and what they are offering, is also a seriously weak position to be.

Unfortunately, we have had both “friends” as well as national lenders that we have work with for years short us at the end of the day. The reasons and stories behind these vary, but bottom-line – if you don’t have your agreement signed and in hand in the beginning of the process you are relying on their kindness to pay you. As my old boss used to say “I won’t walk across the street for a client without a contract”.

The real commercial loans 101 is that they are a reality that every business faces and even more dread to have to contend with. This is usually the case, as they have to find a reliable means of obtaining the funds, finding one that will not kill them with interest rates, and one that is flexible with the amount that is offered and the time frame that the payments are to be made.

In some circumstances, the commercial loans 101 rule is to find an investor so that there are no loans. Yet this does not really solve the problem as much as it presents new problems. The common problems with this is that you now have a second party that is involved with all the choices that are made and this can cause additional complications if the direction that is the business vision does not match their agenda.

Again, the person has to face the reality in commercial loans and what they entail. This can range from a bank loan, a merchant account, or event scouring the commercial and financial worlds for someone that is willing to invest in a company that is either just starting out or trying to expand. Many places and individuals want to be sold on the concept or to have collateral for the loan. These can make a loan a risky choice for some and even a dead end if there is no collateral.

This can bring about the challenge of finding an individual or company that can meet the commercial loan needs. Many times they want to either be involved or have some assurance that there will be a pay back. There are some methods that this can be achieved and these must be addressed by most lenders before they will even consider loaning funds to a cause. The main reason for this is that they do not want to donate funds, but see the money return from a successful loan and the added rates as well.

This can be a very time consuming and frustrating process that can make or break a company during the course of searching and pitching the ideas to the lender. This is time that is spent on hoping and wishing instead of making the strides forward that the owner and the business vision were striving for. The true sad part is that enough time and energy can pass to make this just a fancy and not a reality.

Are you trying to start a business and you need some money to get you going? Do you need a loan or an investor to help you get your doors open so you can work your way to success? There are many ways you can get small business start up loans and there are many creative ways to get money for your business that are not exactly loans. Here are some of your options.

If you have good credit and/or collateral to secure a loan, then you need to start with your bank and the Small Business Administration. This is the best two options due to the smaller interest rates and the better chance of getting the amount of money you need to help you get your business open. This is where you should start if you have good credit.

If the bank and the SBA do not help you or cannot get you as much as you need, then you can move on to some business credit cards and non conventional lenders that deal with commercial loans. These are easy to find and can help you get the financing you need.

If you have bad credit, then you have to get more creative. You can get some money from Prosper online if you try. There is usually the possibility of getting small business start up loans from Prosper that go up to $25,000. You can also sell shares of stock in your company to raise capital or you can find a private backer. There are also Angel investors out there that might help.

When acquiring a business loan, one can expect to pay different rates and fees based upon the years the business has been in operation, the owner’s personal credit history, the business’s credit history, and whether or not the loan is secured or unsecured. If the loans are guaranteed, whether or not they are by the government or some other agency can affect the rates as well.

Interest Rates are controlled by usury laws. A lender can safely charge a business up to 10% interest per year and not violate any usury laws. Depending on the type of lender you seek, personal or commercial, this may not always hold true. There are different usury laws governing personal lenders and those that are protected by the Federal Government (commercial banks, credit unions, savings and loans). Typical lenders charge between 6-7%, however, as stated earlier; financial security in the business and the owner play an important role in establishing interest rates. Often times commercial banks offer fixed interest rates, but more often than not, the rates are flexible after a given number of years. Government loans are offered to small businesses that meet certain criteria. These loans are offered at the approximate US Treasury note rate of + 1.7% (fixed rate). Other agencies and specially funded business loans offer rates that are decided by special committees. Usually they are lower because these loans are only available to certain business owners.

Fees come in different increments based upon the institution you choose to borrow money from. Typical fees include application fees that can run up to $500, although, some institutions and loan companies do not charge any application fee. Closing Costs which usually run within 1-2% of the original amount borrowed. Common commercial loans that are under $500,000 are usually at least 2%. Loans above $500,000 usually have fees ranging from 1.5-1.75%. Other fees that one might encounter when borrowing money for his or her business are: appraisal fees, attorney fees, and environmental assessments. These fees may or may not be included in the closing costs. If not included, these fees may mount up to several thousand dollars. It’s important to ask your financial institution which fees are included in the final closing costs. Government loans and loans that are offered through agencies that cater to certain small business owners offer fees that are based upon the project size. Most are usually at least 3%, some agencies charge the exact amount of all filing fees and an additional 1-2% of the original loan amount.

Many individuals choose to refinance their residence as means for a business loan. Often times these loans can be acquired much easier than a business only loan. Interest rates are often lower and fixed for longer amounts of time, as well. Fees usually range below 2% and can be included in the loan. Having equity in your home may enable business owners to borrow money with lesser interest rates and fees. However, it is a risky plan. If your payments are not made on-time and in full each month, your home may be sold to cover the loan.

More residential real estate investors are exploring commercial real estate and business loan alternatives as a result of the increasingly chaotic investment environment for residential financing. In these circumstances prospective commercial property owners, business investors and business owners should educate themselves about choices for the business opportunity financing and commercial loan climate that currently prevails throughout the United States.

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.