Tag Archives: commercial loan Arizona

Dangers of Merchant Cash Advances

September 2, 2017commercial loanscommercial loan, commercial loan Arizona, commercial loan Texasbigdaddydennis

Merchant cash advances may seem like a quick and easy type of commercial loan, but do the benefits really outweigh the risks?

First what is a merchant cash advance? Broadly speaking it is a lump sum issued and then paid off with a percentage of future sales (most often credit card transactions). This means any time your customer pays with their credit card, a specific percentage of that transaction will go towards paying off the outstanding debt. Another feature of this type of loan is that you pay a factor, rather than an interest rate. A factor rate is a number multiplied by the amount borrowed, which gives you the total amount you owe. For example if you borrow 2,000 dollars on an MCA with factor rate of 1.5 then you owe 3000 dollars. This payment structure has very specific implications. But who would want to get an MCA in the first place?

This type of commercial loan can appeal to borrowers with bad credit, little in the way of collateral or those without an established business track record. Issuers of MCA’s often don’t ask for the same amount of documentation and usually have a broader criteria of who can qualify for their loans than traditional lending sources. Getting an MCA is also faster and easier than getting traditional financing. Obviously, this model appeals to business owners who don’t qualify elsewhere or those who need money quickly.

But consider the many downsides to this type of loan. MCA issuers don’t have to abide by the same regulations as other lenders and therefore they can charge exorbitant interest. MCA’s can be very expensive and it is not unheard of for borrowers to pay triple-digits in the way of APR. The fact that the amount owed is fixed based on a factor rate, also means there is no benefit to paying off these types of loans early. You will always owe the same amount for an MCA ( i.e. amount borrowed x factor rate), regardless of when you pay it off. The unique payment structure of MCAs however presents the greatest risk to borrowers.

What are the implications?

Because MCAs are often paid off on the basis of credit card transactions, they can consistently eat away at your revenue streams. The lender could be entitled to as much as 45 percent (depending on the agreement) of your daily credit card sales. Therefore if this type of loan isn’t paid off quickly, your revenue is deferred to paying back the loan rather than expanding your business (defeating the purpose of getting the loan in the first place). In the worse case scenario, you could find yourself trapped in a cycle of debt, taking out another advance just to pay off the previous one or getting new loans simply to continue operating your business.

Even though a Merchant Cash Advance may seem attractive if you have poor credit, consider the expense and risk involved in this type of commercial loan.

Considering the risks involved in Merchant cash advances you should probably consider them a last resort when seeking financing. While every business is different, the benefits of MCAs are few while the risks are numerous.

Dennis Dahlberg

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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Evaluating your options when finding a Commercial Mortgage

September 1, 2017Commercial Real Estatecommercial hard money lenders texas, commercial lender, commercial loan Arizona, commercial loan Texas, commercial loans, commercial mortgage Arizona, commercial mortgage Texas, Technorati Tags: commercial mortgagesbigdaddydennis

Securing a Texas commercial mortgage can be a daunting process. It is important for you as a borrower to understand the basic characteristics of the institutions that provide these loans.

Getting a mortgage to purchase commercial space can be a long process. Before you begin, know where you are applying and how the organization operates . Commercial banks, credit unions, conduits (i.e. Hedge funds) life insurance companies and hard money lenders are the most common originators of these types of mortgages. This article details the basic characteristics of these organizations so you can know where to apply and find the loan that is right for you.

Local commercial banks are more likely to lend to smaller businesses. They have specialized knowledge in the local commercial real-estate markets and have a vested interest in financing projects in their immediate area. Credit Unions are similar, but have only just recently become common providers for commercial loans. In either case before approaching a credit union or a local bank you should be aware of the conditions in your local real-estate market and thereby have a better understanding of the amount of money you need to borrow.

Conduits (hedge funds) are another common source of commercial financing. They securitize mortgages and sell them onto secondary markets. Therefore these groups are less likely to have an immediate interest the conditions of your local area. They finance expensive projects and usually the loans they issue are a minimum five million dollars. A distinct feature of loans issued by conduits is that they come with pre-payment penalties, as the loans they issue need to continuously generate income from your interest payments. Life insurance companies are similar, issuing mortgages to bolster their portfolios, they offer perhaps the lowest interest rates on their loans. However life insurance companies are perhaps the least likely to approve a commercial loan.

Hard money lenders widely vary, but usually charge the most in interest. However securing a loan from a hard money lender is often easier than getting a loan elsewhere. However the higher interest payments reflect a higher assumed risk on the part of the lender. Consider these organizations as a final resort should your application be denied elsewhere.

What does all this mean?

It is important to consider the characteristics of your business and to find an organization aligned with those characteristics when searching for the right mortgage provider. If you are a smaller business or organization you might want to go to your local commercial bank. If you are seeking to finance a larger project you should probably go to a “conduit,” or potentially a life insurance company in order to secure more funding. Hard-money lenders, charging the most in interest while providing the fastest approval process are probably the best option if you need to secure funding quickly, or if you cant secure funding from other sources.

Consider the scope of the project you are financing and find an institution of a similar size.

This is crucial, if you are seeking a smaller commercial Texas mortgage you don’t want to get bogged down in the slow impersonal process common to larger banks. However if you are seeking to finance a larger project you may need to go to a larger bank. Either way knowing the character of the institution where you are applying for your mortgage will help you find the loan that is right for you.

Dennis Dahlberg

Differences Between Residential and Commercial Mortgages Texas

What are the key differences between a commercial and residential mortgages Texaxs and how can they impact you as a small business owner? Learning these differences can help you develop a strategy to secure the financing you need.

Understanding the nuances of the commercial versus residential real-estate markets can give you as a business owner a better strategy and help you manage your expectations about the lending process. Commercial properties are valued differently and every commercial property is different. Unlike a house, where the value is determined using comparable sale methods, commercial properties are valued based on how much investors in the area are willing to pay for the potential income generated by the property. Therefore commercial lenders are not lending based solely on the value of the property, but on your ability as a business owner to generate income. Lenders know each business carries different amounts of risk. These factors impact the amount you’ll need to borrow for your mortgage, the time it takes to qualify and the way your mortgage is repaid.

Consider the context of the commercial property you are attempting to finance. Is it located in an office block? A strip-mall? Is it a big box anchor store? Whatever the case, each type of commercial property differs in its potential to generate income. Lenders will consider this, perhaps even more than your credit score, so it is important to have a well-thought out business plan detailing how you intend to make money in your new business. Additionally, know your area. Commercial lenders tend to make loans to finance properties in local markets where they know how much investors are willing to pay for commercial properties. Have a sense for how much comparable properties are selling for in your area to get a sense of how much you may need to borrow.

Financing a commercial property is considered riskier and this greatly affects the terms of the loan and the time it takes to qualify. When financing commercial properties lenders realize that they are lending to businesses and not individuals. They assume paying your residential mortgage will be your first priority. Therefore these types of mortgages are considered riskier. The loan terms are usually shorter and the interest charged is often higher. The greater risk assumed by the lender with commercial mortgages Texas means that lenders generally prefer a higher down payment on these types of loans. Consider re-financing your house to get additional money before applying. These types of mortgages are also highly specialized and the time it to qualify will vary depending on the property. C-loans recommends allowing yourself four months before you can expect your loan to be approved.

What does all this mean?

Understand that commercial real-estate is valued differently than residential real-estate. Know the type of property you are seeking to finance and be sure you understand the local real-estate market. Assume the terms of the loan will be less favorable, expect to pay a higher down payment and expect to wait a long time before your mortgage is approved. Knowing these key differences between residential mortgages and commercial mortgages Texas will give you a better understanding about the process.

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