Real Estate Mortgage Loan Essentials for Business Finance

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.

There are numerous significant distinctions between commercial real estate investing and residential real estate investing. Of over 20 major commercial loan differences, several important issues will be covered in this business financing article and other commercial financing elements will be described in additional reports.

Stated Income Commercial Mortgage and Business Finance Opportunities

Stated income commercial loan programs will preclude the need for personal tax returns to qualify for a business loan. However the stated income commercial mortgage will not change documentation requirements involving income for the business being purchased. In contrast to residential real estate mortgages, no doc (no documentation) loans are not possible for commercial financing.

Down Payment Requirements for a Business Loan for Real Estate or Business Opportunity

A down payment varying from 10% to 25% (sometimes higher) will normally be required to buy a business. These requirements can differ based on a number of issues including whether a business opportunity business loan is involved (without real estate), credit scores, business experience of the borrower, type of business.

Commercial Mortgage and Business Opportunity Financing - Size Limitations

Commercial real estate loans and business opportunity financing less than $100,000 are not routinely available. A typical maximum for a stated income commercial mortgage is $2 million. Several common business financing possibilities are limited to a $2-5 million range.

Interest Rates for Business Opportunity Financing and Real Estate Business Loan

Business finance interest rates are commonly more than residential real estate financing interest rate levels, with an average current range of 8% to 12%. It is usually feasible to have variable and fixed business loan rate choices. Financing for a business opportunity will usually have higher interest rates which are generally in the range of 1-3% more than a similar commercial mortgage.

Commercial Mortgage - Business Finance Personal Guarantor Requirements

Even though a business is held under corporate ownership, a personal guarantee from the principal owners is routinely required for a commercial mortgage or business loan. This also means that credit scores of the individual business owners will be used as one of the factors to qualify for a commercial loan. In general all individuals owning over 20% of a business will typically be required to personally guarantee a commercial loan.

Business Loan and Commercial Mortgage Appraisals

Business finance value is significantly determined by analyzing the income generated by the business rather than the residential real estate appraisal approach of reviewing comparable property values. Business opportunity appraisals are much more costly and detailed than residential appraisals and routinely involve about a month to finalize.

Other Important Business Loan and Real Estate Mortgage Differences

There are simply too many important distinctions between real estate mortgage situations and residential mortgages to describe fully in this article. Commercial borrowers interested in a more comprehensive discussion about recall or balloon terms for commercial financing, special purpose commercial property financing, refinancing an SBA loan, buying a business opportunity and how to avoid major business financing problems should see the additional reports we have prepared on this topic.