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The Next Big Thing In Small Business: Smarter Commercial
Real Estate Financing
By Mercantile Commercial Capital
Small business owners
all over Central Florida are finding out that it doesn�t
take 20% down, numerous out-of-pocket expenses, weeks or
months for approvals, and large monthly payments to own or
construct their commercial property. Many firms are taking
advantage of a loan program that flies in the face of
ordinary commercial financing and enables small business
owners to preserve more of their capital while minimizing
the impact to cash flow.
It�s a common belief (and not off base) that all healthy
small and mid-sized businesses should eventually own their
real estate. For most small business owners, commercial
property ownership may be one of the best investments they
can make, as much for real estate expense savings as for
long-term asset planning.
Because of real estate�s leverage advantage, this loan
program offers clients smarter, capital-preserving
financing which provides the highest cash-on-cash return
available. That cash-on-cash return is exactly the metric
by which most real estate investors measure their success,
and it also holds true for owner-occupied investors who
happen to run a business as well. Maybe this is a crazy
idea, but borrowers get to decide where to best use their
capital, and they lower their business risk by only
putting half as much equity down.
Sound too good to be true? Believe it or not, small
business owners can actually enjoy these benefits with a
little-known loan product called the SBA 504 loan. This
program has been in existence for over twenty years and is
�all the rage� in California, but only recently has it
begun to gain serious momentum and popularity in Florida.
SBA 504 loans finance total project costs as opposed to
percentages of the appraised value or purchase price,
whichever is less, like most commercial lenders. This
means that things like FF&E (equipment), soft costs, and
closing costs are included in the calculations of the
total project.
There are at least two overt benefits that should drive
small business owners to choose the 504 loan program. The
first is the 90% loan-to-cost option it provides, while
the second is the fact that nearly half of their loan is a
government-guaranteed bond with an interest rate usually
about 100 basis points lower than the market rate. For
most of 2004 and 2005, the bond rate hovered around 6%,
which is incredible for commercial mortgages --
especially with a true 10% equity injection.
504 lenders get to their 90% loan-to-cost amounts by
providing a first mortgage (which is nearly
always 50% of the total project costs) and a second
mortgage (nearly always 40%). The first mortgage
typically has a fully-amortizing 25-year term at market
rates, while the second mortgage has a 20-year term
but with its below-market rate fixed for the entire term.
504 second mortgages really are the cheapest money
available for most small business owners -- there are not
many banks or private lenders that can match these rates
at these terms. Many banks won�t offer 504�s because of
the smaller loan amounts (only 50% first mortgages
versus the common 80%), which means their pocketbooks take
a hit. When you couple that with the fact that these loans
take more effort and skill on the part of the lender,
borrowers are encouraged to seek someone who has done more
than just a few of these loans (and has done them well).
There are common misperceptions by some that SBA loans are
too much trouble, take too long or have higher closing
costs. It�s also been said that SBA loans are for
start-ups and borrowers that are not well-off.
Fortunately, none of those myths are true about 504 loans.
Some of those negative stereotypes may fit the profiles of
other SBA programs that get more press, but 504 borrowers
are simply utilizing a great lending program which any big
business with a fleet of lobbyists wouldn�t be foolish
enough to ignore. People that perpetuate those old myths
don�t realize that the SBA has changed dramatically.
Today�s SBA has made sure that 504 loans are not any more
complicated or require more paperwork than ordinary
commercial loans, and lenders that focus on this type of
financing have become known for speed and certainty in
closing deals. A good 504 lender should be able to
�pre-approve� a potential borrower within 24 hours after
receiving as few as seven basic documents.
Article Source:
http://www.articlemap.com
Chris Hurn is Pres., CEO and Cofounder of Mercantile
Commercial Capital, LLC based in Altamonte Springs, FL.
His company focuses exclusively on providing SBA 504 loans
for small business owners who want to acquire and/or
construct their own commercial facilities. Contact him at
1-866-622-4505, [email protected], or visit
www.504Experts.com
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