Short-term commercial loan alternatives are frequently forgotten because of misunderstandings about long-term commercial financing. Although long-term commercial mortgage options are often appropriate, there are practical short-term business financing choices that will be more workable for commercial borrowers in realizing profitable business loan outcomes.

Short-Term Commercial Loan and Credit Card Processing Choices

Two of the most overlooked short-term working capital business loan strategies are short-term commercial mortgage loan programs and business cash advance programs in conjunction with credit card processing. Both of these business financing options are relevant for most business owners but are frequently misunderstood.

Short-Term Commercial Mortgage Business Loan Programs

A long-term commercial mortgage is possible for most businesses that involve commercial property. Businesses should not normally be totally financed with short-term funds. When a longer-term commercial property loan is desired, a long-term commercial mortgage of at least 15-20 years is suggested.

However there will be many commercial mortgage loan situations in which longer-term business financing is not appropriate for the business owner. In such circumstances it is important for a business owner to realize that there are viable short-term working capital management options.

When is Short-Term Business Financing Preferable?

For business owners who expect to sell or refinance their commercial property within one to five years, it is especially advisable to explore short-term commercial mortgage loan programs. The most appropriate short-term working capital loan will have little or no prepayment penalties and "lockout" fees normally associated with longer-term commercial mortgage loans.

While we will not attempt to describe the technical aspects of commercial loan prepayment fees and lockout fees in this article, we will note that the absence of such fees in most short-term commercial mortgage loan programs is a very positive aspect of these short-term working capital management options. The lack of such penalty fees could easily translate to a savings of 10% to 30% or more if a business owner needs to sell their commercial property during the time period which would have triggered prepayment fees and lockout fees in a traditional longer-term commercial mortgage loan.

What are the Tradeoffs in a Shorter-Term Commercial Mortgage?

Substantial penalty fees will often be avoided with a short-term commercial real estate loan, but there are some important trade-offs to understand beforehand if a business owner wants a shorter-term commercial mortgage loan. When a short-term business loan is a possibility, the likely business financing will not include special purpose businesses such as funeral homes, the interest rate will frequently be in the range of 12% to 13% and the loan-to-value will typically less than 70%.

Best Possibilities for a Short-Term Commercial Mortgage

The maximum time period for a short-term commercial mortgage is usually three years. The most likely candidates for a short-term business loan are mixed-use, retail, office, multi-family and warehouse properties.

Short-Term Commercial Mortgage Business Loan Lender Limitations

Business borrowers should be prepared for the shortage of lenders who can implement a short-term business loan effectively. There are many difficulties to be avoided with short-term business financing, and selecting a viable commercial lender is of critical importance when obtaining short-term commercial real estate financing.

Credit Card Processing and Credit Card Financing

For any business that accepts credit cards as a method of payment, a business cash advance is a critical working capital management tool that is often overlooked. Even thriving businesses frequently need more working capital than they can borrow. One of the least-known working capital management strategies for successful businesses is potentially the single best working capital loan strategy for obtaining needed cash for growing their business: the use of a merchant cash advance or business cash advance program.

The most likely candidates to benefit from this working capital loan strategy are retail stores, service businesses, restaurants and bars. This highly-effective working capital management strategy uses an under-utilized business asset (credit card receivables) to obtain business cash advances based upon a merchant's sales volume.

Credit Card Financing Based on Credit Card Processing Programs

This business financing technique is called "credit card financing". Some business owners might have used a business loan technique referred to as "receivables factoring" to sell future receivables at a discount and receive immediate cash.

Very few retail and service businesses can properly document their accounts receivable to acquire business financing. Smaller service businesses and retail stores are not likely to have receivables for a business loan.

What these businesses do have in many cases is documented sales volume and documented credit card sales activity. It is this documented level of sales volume and credit card sales activity that becomes a financial asset to the business and its working capital management strategies. Business cash advances from $5,000 to $300,000 can usually be obtained based on a merchant's sales volume and future credit card sales.

The working capital loan time period covered by a business cash advance is typically 12 months or less. For businesses that desire to continue the merchant cash advance program beyond this period, it is usually an easy matter to get an additional working capital cash advance once the initial one has been completed.

Avoiding Problems with Credit Card Financing and Lender Limitations

As with any successful working capital management strategy, there will typically be only a small number of commercial lenders who are effective at implementing the working capital loan strategy properly. There are also a number of problems to be avoided with business cash advance programs, so choosing the appropriate provider of this working capital management service is extremely important to any business owner considering a business cash advance program.

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