Although long-term business loan options are frequently appropriate, there are several short-term working capital and commercial mortgage possibilities that will be much more effective for business owners in achieving successful commercial financing and credit card processing results. Short-term working capital business loan options are often overlooked because of an apparent preference for long-term business financing.

Critical Short-Term Business Loan Options

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.

Nevertheless there will be business loan scenarios where long-term commercial real estate financing is not the best option. When this is the case, a business owner needs to realize that there are practical business financing choices.

When is Short-Term Business Financing Preferable?

It is prudent to explore short-term business loan choices for business owners who want to refinance or sell the property within a short time frame. Appropriate short-term business financing will have more reasonable "lockout" fees and prepayment penalties than typically required with a long-term commercial real estate loan.

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.

Limitations of a Short-Term Commercial Mortgage Business Loan

There are some trade-offs that need to be understood if a business owner chooses shorter-term business financing even though prepayment fees will usually be avoided with a short-term business loan. When short-term commercial real estate financing is a realistic option, the loan-to-value will usually be no higher than 70%, the commercial mortgage will not be readily available for special purpose business properties such as golf courses and the interest rate will frequently be in the range of about 12%.

Best Possibilities for a Short-Term Commercial Mortgage

The most likely candidates for a short-term commercial mortgage loan are office, retail, multi-family, warehouse and mixed-use commercial properties. The time period typically covered by a short-term commercial real estate loan is six months to three years.

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.

Business Cash Advance and Credit Card Processing Programs

An underutilized commercial financing strategy for businesses is possibly the best commercial loan strategy to secure cash for their business: a business cash advance using credit card processing. Credit card financing and credit card processing are effective business financing tools that are usually overlooked by any business accepting credit cards as a customer payment method.

Primary possibilities to take advantage of this business financing program are service and retail businesses. This credit card processing and credit card financing strategy uses credit card receivables to determine the amount of a merchant cash advance.

Credit Card Factoring and Credit Card Processing

This working capital management strategy is also known as "credit card factoring". Many businesses have relied upon a working capital loan strategy called "receivables factoring" or "receivables financing" which allows them to sell their future receivables at a discount.

Most small businesses cannot adequately document their receivables in order to qualify for this kind of working capital loan. Many other small businesses (such as restaurants, bars, retail stores and service businesses noted above) simply do not have such receivables to rely upon as a working capital management tool.

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

There are significant problems to be avoided with a merchant cash advance, and the choice of a funding source is critical to a business that needs a working capital cash advance. As with most complex business loan techniques, there will be only a handful of commercial financing sources to effectively implement and coordinate the credit card processing and credit card factoring.

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