Top 8 Commercial Real Estate Loan Mistakes

A commercial real estate loan is a significant financial transaction in any businesses life.  To increase your chances of successfully obtaining the loan, it is important to avoid these common mistakes:

1.  Not thoroughly researching all of your options.  You need to ensure that you have done your due diligence and reviewed commercial loan terms from different banks and other commercial lenders.

2.  Not selecting the best professionals to assist you.  You should hire a commercial real estate attorney and an accountant who understand commercial real estate.  This is not the time go to with friends of the family or relatives who practice it part time.

3.  Failing to have a definite plan.  Lenders want to see that you have a plan in place for using the money.  They also want to see the timeframe in which you anticipate completion of the planned project.

4.  Failing to have a business plan.  It is always advantageous when seeking a loan, or any type of funding.  The plan must have all the necessary operating and financial data.

5.  Not having cash ready to put into the project.  Before you apply for a commercial real estate loan, you need to make sure you have some available cash on hand.  Commercial lenders want to see that you are investing your own money to cover a percentage of the project.

6.  Not reviewing your companies financials.  You should review your companies financials to make sure that while you are paying back the loan you have enough money to properly run the business.

7.  Going straight to a familiar lender.  Yes, it is good to have a rapport with a lender, particularly when you need a loan.  However, there are new real estate products offered constantly and banks differ with their “appetites” toward certain loans.   Your bank may like your loan request, but the bank down the street may “love” it and would offer you better loan terms and interest rates.

8.  Not having your ducks in a row.  Make sure you have all the documentation that the lender would expect, and be prepared to show why the property or project makes fiscal sense for your company.

By avoiding the eight mistakes above, you will have a much greater chance of getting your loan approved and a much better borrowing experience.

Good luck!

Construction Financing for Builders: How to Secure a Construction Loan in a Volatile Market

construction-loan-spectrum-capitalIn today’s lending market, construction financing can be hard to locate. The current economy has been particularly unforgiving to the construction industry. This has left many builders scrambling to find sources of funding for contracted building projects or property-improvement plans.

So what’s the best way for your construction company to secure the business financing you need?

You must leverage your existing property values against the loan amount you’re seeking. As the value of any properties you own increases, so too do the funds available to help you complete your building projects.

First, you might consider going a conventional route for your financing through a traditional bank or credit union. Just remember: These financiers select which construction projects they back the same way they approve any other loan, and nowadays the construction industry is seen as particularly risky to banks. This means applying for a traditional bank loan can often be an arduous process for builders, with a very limited loan approval rate.

The application process includes their underwriters reviewing such aspects as:

  • The financial strength of your project
  • The financial strength of you, as a borrower
  • Your personal credit worthiness
  • Your net worth

Plus, these days, any commercial real estate loan — with the exception of owner-occupied — is subject to enhanced scrutiny. And construction projects for tenanted buildings can also require certain levels of presold units or occupancy commitments not only at the beginning of the project, but also at different stages of completion as well.

With all the hoop-jumping that traditional banks make you do, a large secondary market for construction loans is private lenders. These lenders tend to charge somewhat higher rates, but the upside is that they are also prepared to fund deals without the same level of scrutiny required by traditional banks. They can self-police their loans by requesting higher amounts of builder equity in their deals. The more equity you put in, the better terms you can get.

Even though private-equity sources charge more, the reality is that construction financing is only required for a short period of time, so the additional costs can still be manageable within the budget of your overall project.

While construction loans are very common due to the amount of building that takes place every year, there is still complexity to the loan application procedures and a fair amount of risk to manage when seeking a loan of this scale — regardless of whether you choose to use a private-equity lender or go a more traditional route through a bank or a credit union.

Those who go into the construction loan process uninformed can experience higher costs and much larger problems down the road.

So you can either put in the time and do your homework on your own, or seek the assistance of a financing professional to help you locate the best source of financing to meet your needs.

The financial advisors at Spectrum Capital have worked closely with numerous business owners in the construction industry who have chosen alternative financing — many of whom were previously rejected by banks. And you don’t have to have a spotless credit history to get the funding you need. What’s more, we can often get you funding much more quickly than a bank or credit union can.

Contact us today and let our financial experts help get you the construction financing you need.

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4 Different Ways to Fund Your Small Business

6-ways-to-fund-your-small-businessNeed funding for a new or existing small business?

There are more ways for small businesses to get financing than you’d think.

Many small business owners believe they can only get a certain kind of financing, but there’s often a much quicker, cheaper, more convenient, or less risky solution to meet their needs. They just don’t know it — YET.

That’s where we come in . . .

To help save YOU from choosing the wrong type of funding for your small business, we’ve put together a list of 4 financing options for you to consider. We’ve outlined the advantages and the risks of each choice so you don’t unintentionally lose time, money — or a stake in your business — down the road.

First ask yourself, “What TYPE of business financing should I apply for: Debt Financing, a Grant, or Equity Financing?” Each of these types is outlined below.

TYPE 1: DEBT FINANCING

Most small business financing is funded with debt financing through financial institutions. If the bank deems you “credit worthy,” they will provide you with a loan or a line of credit that comes with a repayment schedule and interest charges.

They will look at your company’s financial situation — inside and out — and you will most likely need to have a business or strategic plan in place with a solid understanding of your business’s financial situation. Banks like to see a successful track record of managing the business, a strong balance sheet, a compelling personal financial statement, and a solid credit history from the business owner.

UPSIDE:

  • You don’t have to give up any equity (ownership) in your business.
  • It’s available to companies that cannot get equity funding (see below).

DOWNSIDE:

  • You must pay back the loan plus interest charges.
  • The bank may require personal collateral (e.g., your home) from the business owner.
  • Too much debt financing can strain the business’s balance sheet and cash flow.

TYPE 2: GRANTS

Yes, businesses (not just college students and researchers) can receive grants. Several national grant programs are designed to help companies fund their innovations — especially if your business is involved in the fields of Technology or Medical Science.

You certainly don’t have to be a big business to qualify for grant monies. You could apply for the Small Business Administration’s well-known Small Business Innovation Research grant or Small Business Technology Transfer grant, or you could apply for a grant from the Center for Integration of Medicine and Technology. There are also numerous other federal, state, and minority grant opportunities available. BILLIONS of dollars are there for the asking and should not be overlooked as a potential source of funding.

UPSIDE:

  • Grants are FREE MONEY! They are funds GIVEN to you that don’t have to be repaid.
  • Investors love the financial leverage that grants provide.
  • Grants can help you offset some of the indirect costs of operating your business (e.g., heat, water, electricity).

DOWNSIDE:

  • Grants are highly competitive.
  • How you use the funds is strictly defined.

TYPE 3: EQUITY FINANCING

There are tens of thousands of companies that are financed each year by private or “institutional” investors in exchange for an equity ownership stake. These investors can include high net-worth private investors known as angel investors, sophisticated investors called venture capitalists, and shrewd investors called strategic investors. Let’s look at each of these equity investors.

A. Angel Investors — There are approximately 250,000 high net-worth private investors in the U.S. who fund over 30,000 small companies. Angel investors are typically friendly and patient about their investments. They tend to invest in groups, with each person in the group taking a small piece of the deal. The usual dollar amounts of these types of transactions is $25,000 to $1 million.

UPSIDE:

  • In addition to money, angel investors offer you business smarts and networking opportunities.
  • Angel investors are relatively patient about seeing a return on their investments.

DOWNSIDE:

  • Angel investors are often very difficult to find.
  • It can be hard to manage the divergent interests of a large group of angel investors.

B. Venture Capitalists — If you are past the start-up stage, have a quality management team, and have already begun to see success, you could be ready to approach the funding pros. Venture capitalists are a serious player in the investing world. When you talk to them, you need to keep in mind that their funding is extremely time-sensitive. They look to get their money and profits out as quickly as possible. They are a great source of funding if you are planning for meteoric growth and will require further business financing in the future to achieve it. The usual dollar amount for these types of transactions is $1 million and up.

UPSIDE:

  • Venture capitalists are an excellent source of strategic advice and business contacts.
  • They typically have more money to invest in your business if you need more funding to grow even larger later on.

DOWNSIDE:

  • You must be a “fast growth” company that is past the start-up stage.
  • You must be interested in selling the business or going public within three to five years.
  • You must be prepared to share control of your business.

C. Strategic Investors — If you need to get to market quickly, strategic investors can help. These equity investors get their name because they come from within the industry you are targeting and find what you’re selling to be “strategic” for their own business objectives. You need to be careful: Strategic investors can inundate your business with financial opportunities and choices, talk you into re-allocating your company’s resources, and even cancel their relationship with you on a whim. Make sure you have strong legal representation when engaging with this type of investor.

UPSIDE:

  • Being tied to a strategic investor enhances your credibility in the industry.
  • Money can come with access to benefits like manufacturing, distribution, and marketing support.

DOWNSIDE:

  • Strategic investors can force you to make a lot of changes to your business that you may not want.
  • Depending on the other party can be risky; if their strategy changes, they may drop their stake in you on a dime.

TYPE 4: FRIENDS & FAMILY

If none of the three types listed above proves to be an option for you, try a different approach.  For example, if you are unable to get debt financing from a bank, you may wish to consider asking a wealthy friend or relative to give you a loan to support your business. Small business financing from friends and family typically comes in relatively small amounts (usually $50,000 or less) and is given without a lot of legal hassle.

Since it’s a more personal arrangement, you might be willing to enter into an arrangement with a friend or family member that includes equity financing. Is there someone who could share in the expenses whom you wouldn’t mind working with?

Or, if you’re really lucky, do you know someone who would be willing to offer you a grant in the form of “gifted money”?

In any case, you need to be careful: Since business inherently has risks, a friend or family member’s invested or donated money could be lost and that could put a serious strain on your relationship with the person who backed you.

UPSIDE:

  • Using friends or family for financing usually means you’ll have a convenient, no-nonsense agreement with easy-to-understand repayment or equity-ownership terms.
  • It has the fewest contractual strings attached.
  • Financing from friends and family is often available very quickly.

DOWNSIDE:

  • This is a limited, one-time source of funding.
  • You must be ready for an ugly holiday meal with your relatives if you lose their money.

As you can see, selecting the right form of financing for your small business can be tricky. So take your time, and do your homework. Asking for the right amount of capital or equity from the right source can help your company SOAR.

If you need business financing for your business, let us know. The financial experts at Spectrum Capital are always just a phone call (262-456-7613) or an email away. Helping you get the right funding for your business is what we do.

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7 Questions to Ask Yourself When Shopping for a Bank

7 Questions to Ask Yourself When Shopping for a BankMany business owners make the mistake of spending more time researching the costs, choices, and features of a $100 office chair than they spend researching the costs, choices, and features of the bank that will finance their business loans worth 100 — or even 1,000 — times that amount.

It seems obvious that choosing a bank for your business should be based on more than which branch office is located nearest your company or who serves the best coffee and cookies in the waiting area. Yet such trivial niceties are often enough to tempt even savvy business professionals into making a hasty decision on choosing a bank without shopping around. [Read more…]

What is a Mezzanine Loan?

mezzanine loanA mezzanine loan is a form of commercial loan used to finance large commercial properties — typically tall office towers, sizeable hotels, shopping centers, large-scale multifamily properties, and industrial parks.

Mezzanine loans are BIG-TIME loans — typically at least $3 million — generally placed behind even larger first mortgages of at least $8 million.

It’s important to note that few institutional mezzanine lenders will even consider granting a mezzanine loan of less than $3 million, though a handful of expensive hard money lenders may, on occasion, grant a mezzanine loan as small as $1 million. [Read more…]

6 “Insider Tips” for Commercial Real Estate Loans

financing-commercial-real-estate-mazeWe’re here to help you successfully navigate your way through the maze of choices, decisions, and options that will be presented to you in your search for a commercial real estate loan. Here’s the “inside scoop”. . .

1.  Many commercial lenders exaggerate their speed.  [Read more…]

Top 4 Mistakes Business Owners & CFOs Make when Financing Equipment

4-mistakes-financing-equipmentYou make important decisions every day. Researching strategies for equipment financing may not be at the top of your to-do list. Here’s 4 common mistakes busy CFOs and business owners make when financing equipment, so you can avoid falling to the same traps:  [Read more…]

What Is Asset-Based Lending?

What is an asset-based loan?Traditional financing backed by a bank is only one option to meet your business’s lending needs. There’s another way to get the financing you need — It’s called asset-based lending.

Asset-based lending is a means of securing a business loan or line of credit by using the assets of your business as collateral.

[Read more…]

My Bank Put Me in Forbearance — What Does That Mean?

My Bank Put Me in ForbearanceIf you suddenly find yourself unable to make your monthly payments (in full, on time, or at all), your bank may choose to offer you a Forbearance Agreement in lieu of foreclosing on your business and its assets.

In this contract, your bank agrees to delay their right to foreclose on your business and its assets — for a short period of time — to give you a chance:

  • to catch up on your delinquent loan payments,
  • to fix any loan terms you’ve violated, or
  • to find a new lender to refinance your existing debt. [Read more…]

5 Reasons Americans Love Small Businesses

5 Reasons Americans Love Small BusinessesA 2010 Pew Research Center survey found that Americans view small businesses more positively than they perceive churches and universities. Favorability of small businesses has been remarkably stable. Gallup polls in both 2010 and 2012 reported 95% positive views among Americans.

So why do Americans love their small businesses? Five reasons jump out from several studies and surveys: [Read more…]

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