Business Finance And Commercial Mortgage - Home Loan Differences

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

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 Business Loan Options

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 mortgages, no doc (no documentation) loans are not possible for commercial financing.

Down Payment Requirements for a Business Loan

To purchase a business will typically require a business loan down payment varying from 10% to 25% (more in some cases). This amount will primarily vary according to credit scores, type of business, business experience of the borrower and whether business opportunity financing is required.

Business Finance Minimum and Maximum Amounts

It is very difficult to obtain a commercial mortgage less than $100,000. A normal maximum for a stated income business loan and SBA loan situations is $2 million. A number of other business finance programs are limited to $5 million.

Interest Rates for Business Opportunity Financing and Business Loan

Business finance interest rates are commonly more than residential 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.

Business Finance and SBA Loan - Personal Guarantors

In most situations individuals owning over 20% of a business will be required to personally guarantee a business loan. Although it is common for a business to be operated under a corporate ownership structure, personal guarantees from the principal owners are nevertheless required for most business financing. Individual credit scores of all principal business owners will be reviewed as part of the qualifying process for a commercial mortgage.

Appraisals for a Commercial Mortgage or Business Opportunity Financing

It is normal for commercial property and business opportunity appraisals to require over a month to complete. Commercial appraisals are much more complex and expensive than residential appraisals. Business opportunity financing and commercial loan value is traditionally based on business income rather than a comparable property analysis used in residential appraisals.

More Business Finance Differences

As noted previously, there are too many differences between residential financing and business finance situations to describe adequately in one article. Some of the critical issues discussed in separate reports are how to avoid common business loan problems, SBA loan financing, balloon and recall provisions for a commercial mortgage, business opportunity financing and special purpose commercial properties.

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