Securing Commercial Finance
When you first decide to take up Commercial Finance from a Commercial Lender, you need to consider what you have to offer as security for the loan. Items that you can use to secure a Commercial Finance package are generally property, revenue and equipment.
In the UK, most Commercial Lenders will require up 75% of the value of the loan. You will need to come up with as much as possible to secure the loan. The items you put up to secure the loan will be confiscated by the Commercial Lender should your fail to honor the terms of the loan. Let’s look at each of the things that can be used and how they work.
Property
This can be in the form of residential property owned by the principles involved in the business. It can also be existing commercial property that is owned by the business. Finally, it may also include the property you are purchasing, if the Commercial Finance package is being used to purchase property.
When you put up property to secure the loan, the lender will be looking at the equity value of the property first and the total value of the property second. They will also look at the payment history of any property that has not been paid for outright. When the lender has finished looking at the property you have, they will look at your account receivables.
Revenue
The amount of revenue generated on a regular basis. This can be weekly, monthly, quarterly and even annually to see if the income is there to support the payments on the Commercial Finance package. The lender will also look at what your potential for grow is for your receivables. Your previous growth history will help them figure that out. They will look at how much is left when you subtract all your account payables, except the loan repayment and it should be greater than 1.35:1.
Equipment
The degree to which this is helpful will depend on the type of commercial financing you are looking for and the type of equipment you are planning to use to secure the loan. If the equipment has a long shelf life, it will be more desirable than things that have a short shelf life. If your business is a trucking company, the vehicles and the equipment used to fix them could be used to secure commercial financing.
The parts that you would use to keep them running could not be used to secure commercial financing. This is because, once the part is used, it no longer exists to secure the loan. The use of a truck to secure the loan is better because it will presumably be around for a much longer period of time.
If your business is a factory, you could use the equipment you use to make the product you sell to secure commercial financing or a Commercial Mortgage. The supplies used to make the finished product would not be good because they are not going to be around once the product has been made.
This does not mean that short life-span materials cannot be used, but they are counted as general inventory in much the same way as office supplies would be. You need to keep in mind that anything you use to secure the financing from your lender will be lost if you fail to honor the terms of the finance package. The longevity of the equipment is something that will be looked at carefully by the lender.
This is because some equipment, in some industries, out date very quickly and loose value very quickly as well. If you work primarily with computers, your equipment and software will be outdated and worthless long before a loan would be paid off. Factory equipment, on the other hand, will still retain its value many years after the Commercial Finance start date and should satisfy your Commercial Lender.
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Help answer the question about commercial finance loan
What does it take to get a commercial loan for $1.4 million dollars?I want to buy a bowling center for $1.4 million. I have no cash to put down but I have collateral as in a house that was appraised for $143,000. Is there anyway to obtain financing for this purchase?
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Posted on March 8, 2009 | Under Commercial Finance Loan | 6 Comments
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6 Responses to “Securing Commercial Finance”
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According to the business news.. commercial property is going to be the next shoe to drop.
Meaning financing for commercial property right now is probably next to null and void.
Does this help any?
That's kind of a hard question to answer.
If you are a SUCCESSFUL broker, then yes of course. There is great potential to make money, especially in a high value area like NYC. There is also a lot of competition.
However, real estate is cyclical. If people are not buying/ selling real estate you cannot make money as a broker. If by secure you mean a consistently high incomes, maybe not so much. You might have years that are great followed but some that aren't.
A close friend of mine is in the business (not in NYC) and this is a hard time for the industry in many areas due to the lending situation and falling property values. It would seem that it's only a matter of time before things pick up though.
NO. People will not stop buying houses. The American Economy revolves around the housing industry. Even though home sales are DOWN on the whole, you have tens of thousands of people mortgaging property everyday. The misfortune of some does not have to be yours. I am a REALTOR(r) and have pledged to hang in there. I want to be a part of helping to make peoples biggest dreams come true. Godspeed on your tremendous and admirable leap of faith. Much success to you!
The small business Administration has funding available to help with startup costs. Most community colleges have a SBA division on campus. The staff will help you with the funding resources and help with all the paper work you need to do, from business plan to grant or loan application.
For more info, check the national website.
lumber is very lucrative. if you have good forestation, consider contacting a lumber yard for harvesting some of the wood. they do all the work, and you get the check. get a couple offers and make sure to mark off what trees can go, and which will stay.
OK, you're on the right track, but you have GLARING spelling and grammar problems. This reads like someone who has only been speaking English for 3-5 years.
For example:
"Design coffer shop" under the "Name"
"Design coffee shop it well began operations in November 2009, and we going to prepare the plans to undertake a small expansion." Instead of "Design coffee shop will begin operations in November 2009, and we going to prepare the plans to undertake a small expansion." You might even try "Design Coffee Shop will begin operations in November 2009. Plans also include undertaking a small expansion with 6-8 months of beginning operations."
Also, what do you mean by "an assortment of other items" as part of you monthly income? Are these the cookies and donuts, or will you be selling the art as well?
You have Employee Taxes, but what about Employee payroll?
Where are you getting your start up capitol for renovations?
Do you money set aside for Rent?
Where in the country is this shop going to be? This will greatly affect your income and expenses.