|Commercial Mortgage Options
3-15 Year Balloon Loans
Balloon loans offer interest rates that are fixed 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, 25 or 30 years. When a balloon loan matures at the end of the agreed term, the remaining principle balance outstanding is due at that time. The borrower can pay off the loan by either selling the property or refinancing. Investment property is typically owned for a previously defined period of time. Analyze your investment strategy before securing a balloon. Having to refinance a loan is expensive.
Accounts Receivable Financing
To accelerate cash flow, invoices are submitted to a lender (called a "factor") who advances typically 80% of the invoice amount. The factor receives a fee for the service which is usually 3-4% of the invoice amount.
Adjustable Rate Mortgage (ARM)
An ARM is a mortgage with an interest rate that changes periodically, according to an index that is selected when the mortgage is issued. The initial interest rate is lower than that of fixed rate mortgages, but monthly payments can go up or down as the rate is adjusted. For example a 5/1 adjustable is fixed for the first five years and there after will adjust each year. The index used will be the one year treasury rate.
Asset Based Loans
Funds based on a percentage of your current assets. Often used as a source of funds for working capital needs. A lender typically takes a security position in the assets owned by the business.
A mortgage held on a property by the seller that can be taken over by the buyer, who then accepts responsibility for making the mortgage payments.
Strictly, this refers to a bankruptcy proceeding where a company is re-organized under the Bankruptcy Code. A loan for this purpose is designed to refinance a company to assist in removing it from bankruptcy protection.
Financing between the termination of one loan and the commencement of new financing. The Bridge is paid off when the new loan is funded.
Purchase of a controlling stock or partnership interest in a company or business.
The amount of cash derived over a certain period of time from an income producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.)
A pool of mortgages purchased by an investment bank or trust, to be resold in the public market. The investment bank acts as a "conduit".
A short term interim loan used to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he or she progresses.
Funds are advanced to you as work is performed. Payments by the contracting party are generally made directly to the lender.
A mortgage loan that is 75% or less of the loan-to-value ratio; and does not require insurance by CMHC or other private insurer.
The lender supplies a business with funds intended to fill temporary shortages in cash that are brought about by timing differences between outlays and collections. Often used to finance inventories, receivables, project or contract related work.
The process of reorganizing one or more debts or liabilities in order to facilitate the accomplishment of a desired business objective.
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.
A loan for an equity position which represents an ownership position in a property or a loan for the participation in the profits of the commercial property.
A loan to finance advertising, new production or other expenditures, to
increase sales or revenues.
Factors purchase your receivables and rely on their own credit and collection expertise. Basically your customers become their customers. This form of financing is often used by those who can't get bank financing. The cost of financing is usually higher than other forms of Short Term financing.
A Loan to purchase a business opportunity which is promoted by a franchise prospectus filed with the federal and state governments.
High interest loans made to risky borrowers who otherwise cannot get credit for the particular purpose involved.
A loan which is usually for working capital purposes which secures the inventory of a business as part of its collateral.
An agreement by two or more individuals or entities to engage in a single project or undertaking. Joint ventures are used in real estate development as a means of raising capital and spreading risk. For all practical purposes a joint venture is similar to a general partnership. However, once the purpose of the joint venture has been accomplished, the entity ceases to exist.
Leasing can be obtained through a bank, leasing or finance company. Your business will be subject to the same type of review as when seeking a loan, specifically cash flow of company, value of lease object and useful life. Lease terms range fro 3 to 5 years. At the end of the lease, there are generally 3 options: purchase, renew or return.
Line of Credit
A loan that may be borrowed against and paid down during its term. These loans usually have a covenant/special condition attached stating that the loan must have a zero balance for a specified period of time.
The activity of purchasing notes executed by purchasers of homes or commercial properties, which are then sold by the original recipient/lender of the note to a third party purchaser of the note.
Owner Occupied Real Estate
A building or home, usually used for both commercial and residential purposes. The owner also occupies the home or building.
A mortgage loan usually covering development costs, interim loans, construction loans, financing expenses, and marketing, administrative, legal and other costs. This loan differs from the construction loan in that financing goes into place after the project is constructed and open for occupancy. It is a long-term obligation, generally for a period of ten or more years.
Real Estate Loans
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 financed. Repayment terms range from 5 to 25 years. Some lenders may also make second mortgages on real estate. The amount of the second mortgages is based on the appraised market, LTV and the amount of the first mortgage.
Sale Lease Backs
An arrangement by which the owner occupant of a property agrees to sell all or part of the property to an investor and then lease it back to continue to occupy the space as a tenant. Although the lease technically follows the sale, both will have agreed to as part of the same transaction.
Often 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 or less.
Term loans are used to finance your permanent working capital, new equipment, buildings, expansion, refinancing, and acquisitions. Commercial banks are the major source of funding. The term of the loan is based on the useful life of the assets being financed or collaterized. Your projected profit and cash flow are two key factors lenders consider when making term loans.
A Loan granted to a company in trouble, to reverse its financial fortunes.
Financing for the sale of a business which is structured so that the new owner need only "turn the key" in order to start business.
A Loan to a company or individual(s) which is unsecured, such as a credit card loan. Good credit is usually required to obtain such a loan. Unsecured credit may also be advanced to businesses, if credit quality is acceptable to the lender.
Debt of equity financing for new start-up ventures. Same many times involves preferred stock as part of the transaction.