Commercial Lending Programs

This Blog On Commercial Lending Programs For Real Estate Investors Was UPDATED On November 1st, 2018

Commercial Lending Programs are very different than residential mortgages.

  • Commercial Lending Programs are not regulated like home loans
  • Regulators and government agencies classify commercial investors and borrowers as sophisticated investors
  • This is the main reason why commercial loans are not regulated

There are countless commercial lending programs. On this blog, we will mainly cover asset-based lending.

What Is Asset Based Lending

What Is Asset Based Lending?

  • Asset Based Lending or Asset Based Financing is commercial lending programs for commercial borrowers
  • These borrowers can secure a commercial loan that is based on the borrower’s business asset and/or collateral

Here are examples of assets and/or collateral that can be pledged on Asset Based Lending:

  • Accounts Receivables the business has come due for services performed or products sold
  • Inventory at hand and paid for and owned outright
  • Equipment the business owns free and clear
  • Real estate, land, buildings, warehouses, and/or other properties owned by the business

The type of businesses who can take advantage of asset-based lending programs are businesses who are startups:

  • Or has not been in business for a long time
  • Or businesses that have not been profitable who are in fast need of working capital or other types of funding
  • Funding is needed in order to expand its business
  • Many of these businesses needing this type of financing do not have a healthy balance sheet
  • Or have less than favorable financials on their tax returns
  • Companies that are rapidly expanding and need working capital to keep up with their work orders and are experiencing cash flow issues will be ideal companies for asset-based lending financing

Accounts Receivables Lending

What Is Asset Based Lending: Accounts Receivable Lending:

  • Accounts Receivables Lending are very popular
  • Asset-based commercial lending programs for businesses benefits those who need short term financing
  • Benefits business owners who cannot wait until payment from services provided or goods sold and have income and/or account receivables at a future date
  • Accounts Receivables Lending is hands down the most popular commercial lending programs out today
  • Ideal for business owners of all sizes and all different types of industry
  • Account Receivable Lending is established between a business and a commercial lender in order to accelerate cash flow
  • Funding is made by the commercial lender against the accounts receivables the company has

Most accounts receivables advances are anywhere between 70% to 80% of the balance of the accounts receivables due to the business.

Case Scenario Where Business Can Benefit From Asset Based Lending

Let’s take a case scenario. A business is submitting a $1,000,000 of accounts receivables to a commercial A/R Lender the business has by 12 pm on a given business working day.

  • The business should get accounts/receivable advance by the A/R Commercial Lender of $800,000 if the A/R agreement calls for 80% funding advances on A/R from the business
  • As the collections of the Accounts Receivables are collected, the proceeds will go towards the Accounts Receivables balanced owed by the A/R Lending Company
  • Once the A/R lender received the full $1,000,000 by the accounts receivables, the A/R Lender will credit the $200,000 to the business

It will be fewer fees that the Accounts Receivables Lender will take or is agreed upon among the two parties.

What Are Commercial Lending Programs That Offer Cash Advances

Commercial Cash Advances:

  • This is one of the most unique commercial financing options
  • Because of the similarities, this loan option has with Pay‐Day Loans, the loan amounts for this type of financing are generally below $50,000
  • Forget the traditional documents when obtaining this type of financing for your customer
  • Basically, if they have a legitimate business that has been in operation for at least a year, they can qualify for this financing option
  • This is because there is no credit check

Popularity Of Commercial Lending Programs 

Here are some ideas of the type of companies to approach for this type of financing:

  • Restaurants
  • Bars
  • Boutiques
  • Retail Shops
  • Automotive Repair Shops
  • Family Owned and Privately Owned Businesses
  • Jewelry Shops, Hair Salons
  • Servers and Processors
  • Flower Shops
  • Health Food Stores
  • Book Stores
  • Bridal Services
  • Electronic Boutiques
  • Baby and Children’s Boutiques
  • Gourmet Shops
  • Hardware Stores
  • Event Planners and many other businesses!

What Is Asset Based Lending And Businesses That Benefit From This Type Of Commercial Financing?

What Is Asset Based Lending And Businesses That Benefit From This Type Of Commercial Financing?

Ever hear the term that cash is king?

  • It requires a lot of paperwork and questions answered for any business owner to get cash for whatever reason
  • Financials, credit checks, tax returns, Profit and Loss Statements, bank statements, appraisals, and the biggest hurdle is that it takes time to take out a business loan no matter how much equity you have

Asset Based Lending is based mainly on the types of assets and accounts receivables a business has so it takes much short period of time to close on a commercial loan.

Businesses That Benefit From Commercial Lending Programs

Here are the reasons why businesses need fast funding for:

  • Expansion For Their Business
  • Inventory And Supplies
  • Launching A New Product Line Or Buying Products In Quantity For Discount Pricing
  • Sudden Or Unexpected expenses
  • Paying Down Vendor Accounts
  • Marketing And Advertising Expenses
  • Renovations and Repairs
  •  Payroll Expenses

Typical Asset Based Lending Transaction Case Scenarios

What Are Asset-Based Lending Typical Borrowers?

  • Many business owners do not have plenty of money in savings and use their incoming profits in buying more inventory or expanding their businesses

A typical case scenario:

  • where a business owner needs asset-based lending is where a restaurant business owner may have his air conditioning system break in the middle of a hot summer day in July on a Tuesday morning
  • A commercial air conditioning system for a restaurant is a high ticket item
  • can cost over $15,000 dollars
  • Say the business owner is short $5,000
  • Where is the business owner going to go for quick fast financing in an emergency situation?
  • The solution is that the business owner can go to an accounts receivables commercial lender
  • where the lender will wire the $5,000 based on the collateral of future sales
  • the fee and/or interest for this transaction can be $100 per day until the account receivables loan is paid in full
  • The accounts receivables lender normally can get this close in three to five business days or sooner

If you need to know more about asset based lending and/or account receivables commercial lending, please email your inquiry to Gustan Cho Associates Commercial Lending Division at gcho@gustancho.com.

Michael Gracz NMLS 1160212 is a veteran mortgage loan officer with Gustan Cho Associates Mike can help borrowers with less than perfect credit and higher debt to income ratios. Due to The Team at Gustan Cho Associates being a no overlay lender on government and FHA Loans, Mike can structure any less than perfect borrowers files and help them qualify for a home loan in a matter of a short time.

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