The financing can come in various forms, including bank loans, private lenders, or seller financing. Successful partner buyouts require careful negotiation, clear valuation of the business, and a thorough understanding of the legal implications to ensure a smooth transition and maintain the business’s operations. This article will address some of the common pathways for financing a buyout and will highlight some of the benefits and challenges of each approach.

How to Fund the Buyout as the Remaining Partner?

As the remaining partner, funding a partner buyout can be achieved through several financial strategies. Here are a few options to consider:

1. Equity Financing: This involves raising capital by selling shares of the business to private investors or venture capital firms. By bringing in new investors, you can acquire the necessary funds to buy out your partner’s share. However, this will result in sharing future profits and often entails losing some control over the business.
2. Debt Financing: This is a common option where you take out loans from a bank, credit union, or private lender to facilitate the buyout. While this option avoids dilution of ownership, it does add a debt obligation that requires regular repayments and interest costs.
3. Mezzanine Financing: Mezzanine financing is a blend of debt and equity financing. If the borrower (who, in a buy out, is typically the remaining partner in the business) defaults on the loan, the mezzanine lender has the option to convert their debt into an equity stake in the company.
4. SBA Loans: Leveraging SBA loans to facilitate a partner buyout is one specific form of debt financing. While not all SBA loans can be used for buyout scenarios, an SBA 7(a) loan can be used for a partner buyout. This government program often offers longer loan terms and more lenient underwriting guidelines than companies would otherwise find with a traditional bank loan.
5. Refinancing Assets: Another unique variation of debt financing is refinancing the company’s current assets. For example, a company may have equity in its real estate, equipment, or inventory. Through refinancing, the partners can turn this equity into cash that can then be used to buy out a partner.

Selecting the most appropriate financing method depends on factors such as the business’s financial health, the urgency of the buyout, and your long-term business goals. Each option carries its own set of advantages and trade-offs, so careful consideration and possibly consulting with financial advisors are recommended to determine the best fit for your specific situation.

How to Choose the Right Financing Option for Your Buyout

When narrowing in on the right financing option for your partner buyout scenario begin by assessing the financial position and goals of your company, with a particular focus on long-term strategic objectives post-buyout. Consider the cost of capital, repayment terms, and the degree of control over the business operations that each option entails. Let’s look at each financing type in more detail.

Equity Financing

Equity financing is a permanent relationship with a new set of co-owners. The business receives an infusion of new capital, but gives up permanent ownership of shares in the business. The upside is that your business receives an infusion of capital that can positively impact performance and growth.

These new co-owners can be silent partners, allowing you to run your business so long as their annual returns from the business meet their goals. Others may be operating partners who take an active role in operating the business.

Some equity investors will be interested in quickly increasing the value of the business so they can sell their shares to another investor at a profit. When equity partners are not aligned in their growth and exit objectives, it can destabilize the business, serving some partners over others.

Additionally, the business will now owe a percent of earnings to the new investors. It can be paid as dividends, but investors may also want a relationship wherein their percentage is reinvested in the business, expanding their equity until such time as they want to cash out. A sudden exit of equity partners can hurt the business as much as the equity infusion helped at the beginning of the relationship, requiring the remaining partners to find new equity partners or choose another option to refinance the exit.

For many equity investors, the end goal is to grow your business to the point that it is acquired by a larger corporation. Many businesses that take equity, especially from venture funds, find themselves on a treadmill they can’t get off. The goal becomes to find more and more equity, growing the business until it is acquired or can go public. When that is a shared goal, it can be a wonderful match. But if the remaining partners simply want a closely held small to medium-sized business, they have to consider carefully with whom they enter an equity relationship.

Debt Financing

Securing debt financing can be a daunting task for businesses due to stringent lending criteria imposed by banks and other traditional lenders. These institutions often require a strong credit history, substantial collateral, and detailed financial documentation, making it difficult for many businesses to qualify. These criteria can be particularly prohibitive for startups and small businesses that may not yet have a long track record of financial stability.

On the other hand, private lenders, although more flexible than banks, present their own set of challenges. They are often niche-oriented, each specializing in specific industries or sectors, which can make the process of finding a suitable lender overwhelming. It is not uncommon for businesses to spend considerable time and resources in seeking the right lender—akin to searching for a needle in a haystack. This intricate and time-consuming process can delay essential funding and pose significant obstacles in capitalizing on timely growth opportunities.

A primary risk of debt financing is that of securing more funding than your business can repay. Should the market shift and your business experience a significant shortfall in revenue, your business could go into default. For this reason, managing your company’s debt service coverage ratio and putting capital into profit-generating activities is paramount.

In assembling projections for a buyout scenario, the remaining partner should also realistically account for the income generated by the exiting partner. This allows a continuation plan that practically addresses potential changes to revenue following the buyout. To remain stable, the business must be profitable even after losing revenue from the partner’s departure and increasing costs from new debt.

There is a flip side to this coin. The greatest benefit of debt financing is that the remaining partners or sole proprietor can grow the business and retain ownership without the influence of other partners. This means more control over the business and the ability to retain an increased percentage of the company’s profits.

Mezzanine Financing

Similarly, mezzanine financing, with its hybrid nature that splits the difference between equity and debt, can impose significant financial burdens due to its higher interest rates and complex terms. The terms and conditions of mezzanine financing may include covenants that restrict the company’s operational flexibility, potentially limiting its ability to respond to market changes swiftly.

Companies often opt for mezzanine financing when they cannot qualify for the needed capital through banks or other traditional lenders.

A common clause in mezzanine financing is that the debt reverts to equity under certain performance conditions specified in the agreement. Should the company go into default or otherwise underperform, mezzanine investors may be able to overtake control of the company. These factors can heighten the risk exposure of the remaining partners, necessitating a thorough understanding and careful negotiation of terms to balance immediate capital needs with the long-term strategic integrity of the business.

The benefit of mezzanine funding, especially in the real estate sector, is that equity partners can reduce their exposure and realize high long-term gains. By putting in less capital upfront, the partners rely on cash flow to pay down the debt while property appreciation increases the value of their shares in the enterprise. When the property is paid off, they increase cashflow, and in the instance the building is sold, they realize any gain as a lump-sum increase in value over the money they initially put in.

SBA-Backed Financing

SBA loans can be an excellent option for those whose operations qualify as a small business under the criteria set for their industry. With an SBA 7(a) loan, businesses often qualify for more capital, longer repayment terms, and sometimes equal or lower rates as compared to their conventional or alternative counterparts. SBA loan repayment terms can extend to 20 or 25 years, making monthly payments quite reasonable. SBA loans can also be applied to a broad array of business costs, from real estate and equipment to a line of credit and working capital funds.

The downside? The cost of debt may ultimately be higher than other types of financing. Additionally, SBA loans come with some added fees upfront to cover the validation processes required prior to loan approval.

SBA loans can be approved for partner buyouts, but there is close scrutiny on business valuations and the business categories approved for such funding. SBA loan applications are notoriously detailed, and some businesses are denied simply because they don’t gather all of the right information. Brokers, such as our team, can assist in proper packaging and vetting of a loan application prior to submittal, significantly increasing success rates on behalf of applicants.

Refinancing

When refinancing a business as part of a buyout, both partners need to be thoughtful about how the loan is structured. Usually, to be approved, all partners need to sign to guarantee the loan. This means that if the business fails to repay the debt on time, the lender can come after all of the partners personally in order to get repaid. In a situation where one partner is exiting the business, they don’t want to be on the hook if the remaining partner makes bad decisions and goes belly up.

In this case, alternative lenders are needed who will fund the business without all partners guaranteeing the loan. It can be a hunt to find the right lender, which is why a broker can be extremely helpful in preparing a successful package and matching with the right lender. Often the transfer of assets, leverage of those assets, and buyout of the ownership stake in the business will all need to take place at the closing table.

Working with a Financing Broker

When preparing for a partner buyout, securing the right financial arrangement is crucial to ensure a smooth and equitable transition. Engaging the services of a capital broker, such as our firm, can help you navigate this complex landscape of a partner buyout.

Our team of experienced brokers will leverage our industry knowledge and extensive network to find the most suitable capital source for your unique scenario. By collaborating with a broker, partners streamline the financing search and gain access to competitive terms and rates.

Brokers will also help ensure that the financing structure aligns not only with the company’s immediate needs, but also with its long-term business strategies. Partnering with a financing broker can save time and resources while mitigating the risks of high-cost capital and financing delays

Initiating a free, no obligation conversation with our team can provide insights into the best financing strategies for you, whether through leveraged buyouts, mezzanine financing, or other creative capital structures. We’re here to support you in the next step in your business journey.

The post What is Partner Buyout Financing? appeared first on Business Loans & Commercial Financing.

Throughout 2024, our valued partners, clients, and colleagues have helped us grow and evolve, reinforcing our commitment to delivering reliable financial solutions. This past year has shown its share of ups and downs, yet it’s through collaboration with our clients, real estate agents, lenders, and fellow brokers that we have succeeded. Together, we’ve weathered economic shifts and adapted to an ever-evolving financial landscape. As we look back on the year, we’re reminded of the strength of our community and the accomplishments we’ve achieved together.

The year began with optimism that the recession fears of previous years might ease, but concerns lingered. The Federal Reserve’s rate hikes took the Prime Rate to 8.50%—significantly higher than the long-term average of 6.84%. It wasn’t until September that the Fed slightly readjusted, lowering the rate to 8.00%. These higher rates tightened lending restrictions, making qualification harder for many small business owners.

In the face of these market conditions, we’ve seen unwavering resilience from our clients and partners. Small business owners and real estate investors have continued to innovate, reinvent, and adapt to the economic shifts with remarkable resolve. We are proud to be a part of that resilience, helping entrepreneurs establish a strong foundation and pivot to meet new challenges. We believe in the potential of every business and investor we serve, no matter what obstacles arise.

As a part of that support, we’ve helped our borrowers access financing options that allow them to thrive, even in challenging times. Asset-based loans, SBA loans, and secured lines of credit have been critical in supporting our clients over the past 12 months. Refinancing and loan consolidation have provided relief, helping to soften the impact of high interest rates. We’ve worked diligently to position clients for success by building strong borrower profiles, making them attractive to niche lenders. Private lenders have played a crucial role this year, often stepping in where traditional lenders have hesitated, and we are grateful to be able to connect our clients with the resources they need.

The ongoing shift in commercial real estate, still deeply impacted by the pandemic, has brought its own set of challenges. Office spaces face uncertainty as companies slowly return to on-site work with a renewed focus on added amenities and flexible arrangements. In response, we’ve guided our clients toward forced appreciation strategies in their commercial real estate (CRE) portfolios, helping them extract value without the risks associated with new acquisitions. We’re dedicated to supporting our clients as they navigate these complex shifts, working with them to focus on cash flow and stability over-reliance on venture capital.

Another area of rapid transformation has been the tech market, with AI advancements bringing unprecedented opportunities for startups. As traditional lending options are limited in this space, we’ve been privileged to support these innovative businesses through unsecured lines of credit, SBA loans, and personal guarantee loans. By securing the right financing, our clients have been able to tap into emerging technologies, positioning themselves at the forefront of a dynamic industry.

The strength of any community lies in its willingness to work together. In the world of small business finance, we are reminded every day that our connections and partnerships form the backbone of our work. Working hand-in-hand with investors, lenders, brokers, and our extended network has allowed us to create a supportive environment for all. Thanks to this strong community, the challenges of 2024 have been less daunting, and we have been empowered to continue our mission of helping businesses thrive.

2024 has been a year with mixed blessings. While financing is a challenge, we remain committed to solutions now and in the years ahead. As we move through the holiday season and into the new year, we want to reiterate our sincere gratitude for your trust in us. We recognize the hard work, the risks, and the sacrifices you make daily. In the new year, our commitment to you remains steadfast. We’ll be by your side through every economic high and low, providing the financial tools and guidance you need to succeed. Here’s to a prosperous 2025—may it bring growth, opportunity, and achievement to you and your business.

The post Thanks To Our Valuable Partners for Success in 2024 appeared first on Business Loans & Commercial Financing.

Every successful property investor started small and scaled upwards. Whether you want to profit from a vacation property or invest in a retail center, you’ll probably need financing to get started. Your broker is a valuable source of expertise and experience essential to making the right moves, especially if you’re just getting started with your portfolio. In this article, we’ll cover some basics of using commercial real estate financing to build your investments. For tailored professional advice, reach out to your broker.

Second Home or Investment Property?

Looking to buy a second home or investment real estate? How you refer to a property makes a big difference, even if the building is the same. Buying a second home, however, is very different from buying an investment property. Here’s why:

• Taxes: The IRS treats second homes and investment properties differently, changing how you report income from the property and what you can claim as deductions.
• Lenders: Lenders look at the two types of properties differently when you’re applying for a loan. You’ll need to review their qualification criteria carefully.
• Living: A second home is a property you live in for a certain part of the year, whereas you don’t need to occupy an investment property.
• Size: Investment property can have more than one unit, like a duplex or apartment building. A second home is typically a single-family unit.
• Insurance: The type of insurance you need is different for a second home vs. income property. Income property insurance covers you for tenant lawsuits or loss of rental income while second home insurance doesn’t.

Your broker can help you determine the type of financing you need and how to apply. We can also assist you in defining your goals and finding the best lender.

Why Choose a Commercial Loan?

If you own a home, you’re probably familiar with the residential loan process. So, it makes sense you’d think of doing the same when you’re ready to buy a new property. However, when you’re buying property to generate cash flow, you can gain multiple benefits from going with a commercial loan.

• Flexibility: Commercial real estate lenders pivot faster than traditional residential mortgage lenders and accommodate a wider range of terms. They also close faster, helping you grab that ideal property first.
• Qualification: Commercial loans can be based on the potential income of the property instead of your personal credit rating. However, lenders may still take your personal finances into account.
• Opportunity: Once you get to four or more units, commercial property earning opportunities increase exponentially. Commercial loans let you purchase multiple properties under the same loan.
• Scalability: The larger the investment, the higher the cash flow you can earn. A two-level apartment building will earn more than a duplex. A residential loan will restrict you to smaller properties.

Because they’re so flexible, there are a lot of options when it comes to commercial real estate financing. Your lender will show you the best-fit loans to help you meet your investment goals.

Match Property Types to Your Goals

A diverse portfolio balances risk and is more resistant to market fluctuations. If you already own single-family housing, consider retail space or mixed-use property as your next move. Make sure you’re matching the property type to your current investment goals. Your broker can help you assess the viability of an investment property based on what you want to achieve with your portfolio.

Vacation Properties: Vacation properties generate seasonal income, especially near beaches, ski resorts, and special events. They require active management, which is why you may choose to work with a management company or rental platform (AirBnB, Vrbo, etc.).

Asset-based loans (a.k.a. DSCR loans) are scalable and based on the earning potential of the property. Private lenders are often short-term rental investors themselves and understand the nature of the market better than others. They’re typically more flexible than traditional lenders. Discuss these options and more with your broker, who will give you feedback based on your personal investment goals.

Duplexes and Triplexes: Having multiple units in a property can offset vacancies and generate steadier income than a single-family or vacation property. They’re small enough to be handled by self-management or hired part-time management. Duplexes and triplexes can generate income throughout the year, depending on your lease terms.

Portfolio loans are popular with investors looking for custom terms or who don’t meet traditional lending criteria. Private loans are short-term loans that let you secure investments quickly and have more relaxed qualification requirements. Ask your broker if one is right for you.

Multifamily: Multifamily real estate normally has four to five units in a single property. At this stage, many investors choose to hire a management company. They’re ideal for investors who want consistent cash flow, risk diversification, and scalable growth.

USDA loans work well for properties in rural areas when you plan to live in one of the units. Commercial Mortgage-Backed Securities (CMBS) can be ideal for investors interested in non-recourse loans with larger amounts and lower interest rates. These are just a few of the options your broker can share with you.

Office: Investors can typically lease offices for much longer than multifamily properties, reducing vacancy rates and providing longer-term cash flow. They’re suitable for investors who want consistency and lower maintenance costs.

SBA 504 loans can be a good match for office investors who also own a small business. They provide fixed-rate financing, competitive rates, and low down payments if you’re sharing your office space with renters. Life insurance companies also finance real estate. They come with low rates and long terms but can be more difficult to qualify for. Ask your broker how they can help with your loan application.

Retail Center: Retail centers like strip malls and shopping centers can generate high cash flow, but need active management. Some retail leases allow you to earn a portion of your renters’ income. They’re often suitable for investors who want high income and don’t mind slower appreciation.

Bridge loans provide funding for acquisitions and renovation before an investor secures permanent financing. SBA 7(a) loans are flexible and low-interest, also providing working capital. Ask your broker how to qualify, even if you’ve been previously denied a commercial loan.

A well-chosen property not only produces income but also appreciates over time, helping investors build long-term wealth. Property values, appreciation rates, loan terms, and interest rates all vary based on the market, property class, property type, and location. A class A multifamily property near a tech hub, for example, might perform better than a class B multifamily by the beach. Engaging a qualified broker will help you make choices that grow equity in your portfolio.

The post Build Your Portfolio with Commercial Real Estate appeared first on Business Loans & Commercial Financing.

The Equal Credit Opportunity Act (ECOA) requires lenders to disclose the reasons for a loan denial, though certain exceptions apply. In the case of a decline, you may need to submit a formal written request to obtain this information, which could delay the process by weeks or even months. Understanding the most common reasons for credit declines – and how to address them – ahead of time can streamline your application process and save you significant time and effort. Here are the top 10 reasons your small business loan may be declined and actionable steps you can take to improve your chances.

1. Incomplete Application: One of the most common reasons for application rejection is submitting an incomplete or improperly documented application. Lender requirements vary in terms of the criteria they want to evaluate for a given loan. Some want to see financials, while others prioritize credit history, asset valuation, cash flow, or operational history to assess eligibility. Some lenders require audited books, while others do not. Often, businesses prepare one package and submit it to a variety of lenders, resulting in applications that are insufficient, even though the applicant may be eligible for funding.

   Solution: Partner with a loan broker who can first match you with a suitable lender and then create a thorough and accurate application package. Brokers serve not only as an extra set of eyes, but also possess a deep understanding of the documentation requirements for various lenders. By working with us, you’ll minimize immediate rejections from lenders who don’t have the time for back-and-forth requests for additional information. Streamline the application process by partnering with our team, and significantly increase your chances of approval.

2. Low Credit Score: Credit scores can drop for various reasons, many of which may be outside your control. However, some lenders rely heavily on credit bureau reports when making lending decisions, even though these reports may not provide a complete picture of your financial health. A denial can be based on the personal credit score of the owner or principals (anyone with a 20% or greater stake in the business), or it can be the result of a business credit score such as a poor PAYDEX or Small Business Financial Exchange score.

   Solution: Not all lenders weigh credit scores equally. Some prioritize personal credit ratings; others will privilege business scores, and still others ignore credit scores entirely in favor of other underwriting guidelines. By working with a broker, you can find lenders that will evaluate your business in its best light during the application process.

3. High Debt-Service-Coverage-Ratio (DSCR): While a company may be cash rich or asset rich, what lenders look for is the relationship between debt costs and profits – i.e. your business’s ability to service its debt with its income. Lenders view a low profit to debt ratio as an increased risk, assuming that your business may struggle to handle additional debt with its existing cash flow.

   Solution: A broker can help identify strategies that improve cash flow and reduce your debt load, such as debt consolidation or refinancing. These strategies focus on changing monthly debt service by reducing payments. This can be done by refinancing at a lower interest rate, an extended repayment term, or both. Alternatively, a broker may leverage products and lenders for your business that do not include DSCR in their underwriting process at all.

4. Previous Loan Rejections: A rejection from one lender can trigger a chain reaction of denials. Even if you don’t disclose previous loan applications, your business credit report and financial data often reveal them. Transparency is crucial—attempting to conceal relevant information can backfire.

   Solution: Understanding the reasons behind your previous loan denial is key to addressing the issue. Share this information with your broker, who can customize financing strategies to overcome barriers. For example, an experienced loan broker may match you with lenders who use a different set of underwriting guidelines when they evaluate your application. Knowing the issues that resulted in a previous decline will allow your broker to develop strategies that side step these challenges on your next credit application.

5. Increased Financing Activity: A pattern of frequent borrowing may signal potential risk to lenders, raising concerns that if you continue to take on more debt you may not be able to repay your existing loans. Rapidly raising debt levels increases the perceived risk of default, making lenders hesitant to extend funding.

   Solution: Debt consolidation simplifies your financial obligations by merging multiple loans into a single, manageable payment. We’ll help you find consolidation loans that reduce your interest rate and improve your credit score, making it easier to stay on top of your finances. Alternatively, a flexible line of credit may be suggested. This credit line can be opened one time, but then drawn on again and again when additional funds are needed. This flexible solution removes the need to apply for funding each time your company faces a new demand for capital. Your credit history will no longer reflect a stream of rapid applications, ensuring that when you do need to apply for a large amount of credit in the future, your business will be seen in the best light.

6. Time in Business: Startups and new franchise owners often face challenges when applying for loans due to limited time in business. Without an established track record, it becomes difficult for lenders to assess your financial stability. This lack of history can lead to uncertainty, which translates to risk for lenders—making it harder for newer businesses to secure financing.

   Solution: Often traditional lenders are unable to lend funds to startups because of regulations or lending criteria put in place to protect the funds of depositors. However, there are lenders that are unconcerned with time in business and underwrite projects based on other criteria. Our brokers help startups and new businesses to leverage these lenders when sourcing capital. From franchising to launching a software company, or completely new concept, we can match borrowers with the right funding. For businesses less than three years old, explore startup loan options with your broker that are designed to meet the needs of newer ventures.

7. Collateral: Especially in real estate, equipment, and other asset-based borrowing, lenders heavily weight what assets your business can pledge to secure the loan. Rather than a large down payment, if the item you are purchasing, such as equipment or real estate has sufficient value, the lender will extend credit in exchange for leverage of the asset. Additionally, to reduce interest rates on working capital funding, leveraging business property can reduce your cost of money.

   Solution: Often bridge or private funding can leverage existing assets. Borrowing can be based on anything from real estate to stocks and bonds, depending on the lender.

8. Bankruptcy: Past bankruptcy raises significant concerns for lenders, as it indicates potential risk. Even if you have made strides toward recovery, lenders may interpret bankruptcy as a reflection of poor financial management, which can deter them from approving your application.

   Solution: What criteria make a lender overlook a bankruptcy? Asset-based loans can help mitigate this risk by providing lenders with collateral to secure the loan, but so can cash-flow financing or factoring. We’ll assist you in identifying financing opportunities to source loan options based on your current scenario.

9. Industry Type: Some industries are perceived as higher risk than others, with these perceptions fluctuating based on current economic conditions and each lender’s individual analysis. Sectors such as restaurants, bars, casinos, nonprofits, cannabis and construction often face scrutiny, leading many lenders to reject applications from businesses within these fields.

   Solution: Specialized lenders have backgrounds and strong experience in specific industries, giving them insight into the unique challenges these businesses. These specialized lenders focus on niche markets, leveraging their expertise to give them an edge in supporting businesses like yours. Your broker can connect you with industry-specific lenders who view your application as a valuable opportunity rather than a risk.

10. Capital/Down Payment: When you bring cash to the table, it does a lot to reduce the lender’s perceived risk. “Skin in the game” matters. When you make a larger financial investment in a project, lenders see you as being more committed to the success of your venture. Additionally, if you default on the debt, the lender’s risk is lower because you carried more of the financial burden up front.

    Solution: When a business is low on capital, a bridge loan leveraging current assets can secure funding for a down payment on new resources. Taking on a silent partner who can bring cash to the deal, securing mezzanine funding, or taking preferred equity are all ways to close the gap in funds expected by your primary lender.

The path to overcoming a loan denial can seem daunting, but with the support of a loan broker, capital is available. Evaluating your current scenario, identifying options for financing, and creating a roadmap from where you are to where you want to be, are all critical steps in creating a successful financing and growth plan.

For every financing challenge, there is a path to capital for your small business. You just need to leverage the right strategy, lender, and product for your unique scenario. Contact our team today and we’d be happy to help you turn loan denials into funding approvals.

The post Loan Denials: Top 10 Reasons and Solutions appeared first on Business Loans & Commercial Financing.

Your success is important to us, which is why we’ve curated a network of lenders who work in all types of industries. Some of them are industry professionals who know first-hand the challenges you’re facing. They began lending in that space to help other small businesses succeed. Others are aware of the opportunities that exist in niche industries and want to be a part of their growth. However, you won’t always find these lenders by searching online. Our brokers will connect you to specialized capital sources ideal for your business. It’s like having a tailor for your capital stack!

Here are some of the industries we support with capital sourcing. If you see your business reflected in this list and want to access financing, give us a call. Even if your industry type isn’t listed, we’re happy to review your business goals and tell you how we can help.

We find capital sourcing for hard-to-finance industries. Our brokers eliminate the need to chase lenders who don’t understand your vision.  

To maintain nonprofit status, charities, and NGOs must adhere to strict reporting guidelines and fund use restrictions. Donated funds can’t always be applied to daily operations. In that case, payroll, equipment, and construction funds must come from another source. Lenders like community development financial institutions, or CDFIs, specialize in lending to nonprofits and some of them are nonprofits themselves. Our brokers will connect you with a reliable lender when you need flexible leasing, bridge financing, asset management solutions, and more for your nonprofit business.

Religious Financing

Most churches rely on donations and tax relief programs to keep their doors open. To continue serving their communities, however, they need a financial boost for fundraising programs, remodeling, and equipment. Whether you’re providing a place of worship for Christian, Muslim, Buddhist, or Jewish congregations, we can provide loans with minimal usage restrictions. Access easy repayment options, unsecured loans, and nonrecourse loans to help your organization thrive.

Charter School Financing

On average, charter schools receive less funding each year than their district school counterparts. They’re also prohibited from charging tuition, which creates a significant funding shortfall. Some charter school teachers even use their personal funds to bring in supplies for their students. When it’s time to upgrade infrastructure, manage repairs, or pay for new gym equipment, we help charter schools with flexible, low-interest loans that meet their needs. We can recommend lines of credit, tech leases, and affordable private loans for your charter school to make high-cost purchases feasible within your monthly operating budget.

DBE & ACDBE Financing

The Disadvantaged Business Enterprise and Airport Concession DBE programs are designed to balance federal and state contracting opportunities. They operate under strict eligibility guidelines and must maintain certifications and registration. Banks and other financial institutions are historically hesitant to lend to disadvantaged groups. Our brokers partner with nontraditional lenders that focus on serving smaller communities.

Construction Financing

Construction has always been considered a “high-risk” business category by mainstream lenders because projects don’t always go as planned. Construction loan risks are also highly sensitive to market fluctuations. However, experienced lenders in this industry know how to mitigate those risks and put themselves and their borrowers in profitable positions. If you’re seeking a construction loan for your next project, ask our brokers to connect you with our specialized lending network. Your specialized business needs specialized funding, not one-size-fits-all financing from lenders who treat you like a number. Our brokers will learn about your company and the future you want to create so we can provide the best options to get you there. With access to our exclusive lender network, you’ll be building your next milestones with the confidence the right funding can provide.

The post Supporting Hard-to-Finance Industries with Capital Sourcing appeared first on Business Loans & Commercial Financing.

That said, performance in sectors within CRE is beginning to diverge so that a few stand out as more resilient than others. Developers will need to work closely with brokers to identify unique opportunities and take advantage of a few important strategies for success.  As lenders impose more restrictions and change their criteria, you can be prepared to pivot to meet these challenges with customized advice from your brokerage.

Current Conditions

On September 18th, the Federal Reserve announced a drop in rates by 50 basis points. The next day, banks announced the new Prime Rate of 8.0%. The resulting surge in the S&P 500 over the following weeks demonstrates how much the change excited investors. But the Fed has made it clear this isn’t a sign of a new trend. Since CRE loan rates are based on much more than the Prime Rate, it has less impact on lending than it might appear.

Supply chains are still fraught with headaches, causing many projects that have already broken ground to stall. Lenders in some cases have granted loan extensions to avoid a mass of defaults. However, when those extensions expire in 2025, they’ll add to the trillion-dollar maturity wave expected to hit next year.

Banks, especially regional banks, and life insurance companies remain the main sources of debt financing for construction. Banks have pulled back leverage from 75% loan-to-cost (LTC) to as low as 50%, meaning borrowers have to find new ways to make up the difference. Equity financing is where the real challenge lies. Those lenders have tightened interest rates and loan terms, now using higher exit rates and debt service coverage ratios (DSCR) in their underwriting.

2025 Predictions

Many CRE sectors are likely to see a dramatic slowdown in growth, but it’s not even across the board. Retail and office will remain dismally low as difficulty in predicting future performance causes lenders to shy away. On the bright side, the numbers for warehouses, data centers, and manufacturing look strong at 40% of the nonresidential market, even if the overall industrial sector has stalled. Reasonable growth expectations for institutional, healthcare, and amusement properties are at 4%, with the most potential in education (per the AIA). This growth could be impacted by immigration levels (which are closely tied to election outcomes). In terms of lending, the slower sectors are likely to see less loan availability than higher-performing sectors.

The bigger banks will see higher defaults as a result of the maturity wave than smaller, regional banks will. There’s also more inherent risk for lenders in leased properties than owner-occupied ones. When borrowers default, the hit to lenders drives CRE prices downward. Diminished ability to meet debt-service requirements also applies downward pressure on available loans. To protect against this risk, lenders now require higher exit rates and DSCRs in their underwriting.

Finally, Some Good News

The key to success is to act now before the lending environment worsens. Our team provides individualized advice based on your business goals and objectives, and helps to clarify how lender expectations have changed overall. Achieving financing goals at this stage may result in less competition in the near term.

Though 2025 may become a challenging environment for new construction financing, there is still opportunity in 2024. By acting before the close of the year, there is the opportunity to gain long-term benefits like a competitive edge over developers who delay, leading to a better position in the market when financing access improves.

In particular, look for financing outside of big banks to find non-traditional lenders who won’t face the same risks. Our team is here to help you match your project to the right financing. We will help you capitalize on what remains of the positive market conditions before the end of the year.

The post Construction Loans: Why Developers Shouldn\’t Wait for 2025 appeared first on Business Loans & Commercial Financing.

State of the Market

So far this year, the Fed has only changed interest rates one time for the better or worse. However, the FED decided in September to implement its first rate cut of 50 basis points or half of 1%. Some economists expected only a 25 basis point reduction, while others anticipated 50. The change drops the Prime Rate from the 8.5% we’ve seen since July last year to 8%. It is also the only decrease expected in 2024.

The Congressional Business Office, which provides budget analysis for Congress, projects a 3.9% unemployment rate and 2.7% inflation for Q4. It also expects economic growth to slow over the next two years. Financial advising firm Vanguard expects a key measure of inflation, called the core PCE index, to go up from its current rate of 2.6%, affected by past year price comparisons. The labor market, however, should remain strong for the rest of the year.

What That Means for Refinancing

Given the economic forecast for Q4, it’s time for businesses to gear up for a refinance as a rate cut in September could lead to better than current borrowing terms. As inflation drops, companies might face lower input costs, but not necessarily enough to offset debt. Refinancing debt can help businesses manage it more effectively. Given the expected slower economic growth, locking in a lower interest rate through refinancing before the end of the year could be a prudent move. This ensures lower debt service costs in a potentially less robust economy.

Refinancing Benefits

If you’re on the fence about refinancing, there are significant cost savings to be had if you do:

• As your current debt becomes due, you may be expected to provide a balloon payment to close it out, depending on the type of loan. However, if current economic conditions make that unviable for your business, refinancing can help you avoid it.
• Having high-interest loans can drop your credit score. When you refinance to a lower-rate loan, it can boost your score. If your business was new when you got your original loan, having built more experience since then may mean you qualify for a lower interest rate.
• If your current loan isn’t serving your purposes anymore, you can change the type of loan you have by refinancing. For example, shake off the high-interest debt from short-term financing by refinancing with a long-term mortgage.
• Refinancing from floating to fixed-rate loans can lock in rates before they rise again. Fixed rates also make it easier to plan and budget, knowing exactly how much you’ll need for every payment.
• You can access equity with a cash-out refinance to fund expansion projects. The new loan, based on your current equity, pays off the original loan, plus provides liquid capital.

As a whole, the more businesses are looking to refinance, the more lenders are pressured to offer competitive rates, which benefits you and other small businesses.

Refinancing Example

Many new small businesses opt for merchant cash advances to help them with short-term capital injection. With a merchant cash advance, you receive money quickly without enduring a rigorous qualification process. In exchange, you agree to give a percentage of future sales to the lender. You end up paying back the initial debt, plus a high interest rate that cuts into your profits. Typical rates can be as high as 50%.

SBA loans are capped by the federal government, so lenders can’t bump rates above a certain level. Right now, the rate on an SBA 7a loan maxes out at 15% and gets lower the more you borrow. To bring the concept into focus, here’s an example calculation on a $200,000 loan. First, let’s look at the most common loan small businesses take out, the Merchant Cash Advance with its estimated 50% interest rate:

$200K x .5 = $100K in interest | $200K + $100K = $300K required repayment

Now, let’s look at an SBA 7a revolving line of credit at an estimated 15% interest rate:

$200K x .15 = $30K in interest | $200K + $30K = $230K total cost

As you can see, refinancing into an SBA loan represents a substantially lower cost to your business than keeping the original MCA. In addition, a working capital line of credit allows you to pay it off on your own schedule (either increasing or decreasing your cost of money based on your repayment timeline). A revolving line of business credit allows you draw on it whenever needed, providing a safety net for your business.

With a $200,000 working capital line of credit a business could save $70k per year and have a better tool for supporting their business as compared to taking out an MCA loan.

Preparing to Refinance

Once you’ve decided to refinance, your best bet is to do it before the end of the year. Given that it’s an election year, existing incentives for certain types of projects could go away or shift depending on the new administration. The election results will affect the market, no matter who wins, complicating predictions for 2025’s economy.

Your first steps to refinancing should be to gather your paperwork and review your current loans. You’ll need to understand your current rates before you seek lower rates. Review your credit score history to see if you’re in a favorable position to take advantage of lower rates. Finally, check your agreements for any penalties your current lenders may charge for refinancing.

One important thing to remember is that you don’t have to consider refinancing alone. It’s advisable NOT to go it alone. Brokers prove invaluable during a debt transition, offering expert advice, the latest loan rates, and customized refinancing recommendations. You’ll get all the information you need to make the wisest decision for your company, instead of wasting time with debt you don’t need.

The post Is It Time to Refinance? appeared first on Business Loans & Commercial Financing.

Business lines of credit are a convenient source of working capital on an as-needed basis without the high interest rates of credit cards. Unlike many business loans, they aren’t tied to a specific purchase, providing maximum financial flexibility. Another distinct advantage they have is the option to choose between secured and unsecured credit. Secured lines work best for companies with strong asset portfolios. Unsecured lines benefit businesses with high credit scores and net income.

Secured Lines of Credit

For a secured line of credit, your business must supply collateral assets. These assets lower the lender’s risk, which promotes lower interest rates for borrowers. Should you fail to pay back the loan, your creditor is entitled to recover the asset. The amount you can borrow is tied directly to the value of your collateral asset, whether it’s real estate, equipment, inventory, or accounts receivable.

Asset values are subjective and determined by the lender, even if you have an appraisal done on the asset. It’s common to get around 80% of the value of a property, so be sure it’s worth more than you need to borrow or be prepared to offer multiple assets to secure the loan. If you have a line already and your asset has appreciated, let the lender know its new value so they can consider approving you for a higher credit limit.

Secured Lines are best for:

• Businesses that tend to carry a balance
• Startups without an established credit history
• Borrowers that require more capital than an unsecured loan provides
• Companies seeking a long-term loan

Before choosing a Secured Line of credit:

• Remember that the lender may seize collateral assets if you default on the loan.
• Some lenders require a personal guarantee, making you personally liable for the loan.
• If your asset depreciates, the lender can request additional assets to secure the loan.

To increase a Secured Line of credit:

• Invest in revenue-generating activities to increase cash flow and annual income.
• Offer the lender additional collateral or prove collateral appreciation.
• Make sure you’ve met any benchmarks in your original contract.
• Meet your payment deadlines and minimums consistently.

Unsecured Lines of Credit

Like most business credit cards, an unsecured line of credit requires no collateral to secure the loan. Instead of using an asset’s value as a basis, unsecured lines are based on cash flow and margin. One primary benefit of unsecured lines of credit is that you won’t risk your business’s assets if you run into a problem with repayment.

Although getting an unsecured line of credit relies more heavily on your credit score than with a secured line, it’s not impossible to get one if you have bad credit. You may, however, end up with a higher interest rate or a lower credit limit than you would with good credit. Ask your broker to show you options for unsecured lines that fit your credit profile.

Unsecured Lines are best for:

• Companies with a strong credit history and good credit scores
• Businesses that don’t want to provide collateral assets
• Borrowers who want to fast-track the approval process
• Small business owners with lower capital needs

Before choosing an Unsecured Line of Credit:

• Lenders mitigate their risk on unsecured lines by charging higher interest rates.
• An unsecured line may not offer enough credit to meet your goals.
• Unsecured lines often have stricter qualification requirements.

To increase an Unsecured Line of Credit:

• Increase your cash flow and net income.
• Stay on top of your credit score – business and personal.
• Keep your loan documentation up-to-date with your lender.
• Be prepared to show how your business will benefit from the additional credit.

Our team is here to help you secure and expand your available business credit throughout your business lifecycle. Our brokers will advocate for you with your lender and help position your business to get approved for the right limits at each stage of growth. We offer expert advice for managing debt, increasing cash flow, freeing up capital, and raising your credit score. Ask us how we can find you the best deals on new lines of credit, too!

The post How to Increase Your Business Line of Credit appeared first on Business Loans & Commercial Financing.

Hard Money Financing

A hard money loan is a loan that is secured by assets, usually from a private lender. For example, you can use a hard money loan to tap into the value of an existing property without liquidating the asset. If your multifamily housing property is worth $1M and you take out a hard money loan for 80% of the property’s value, you’ll receive $800K in financing. The loan eliminates the need to sell the first property before acquiring the second. But you can also build out your portfolio by retaining both properties.

Here’s a quick breakdown:

• Pros: Hard money loans enable fast property acquisition. They can be approved quickly, and you don’t need to wait to sell old property. These loans also work well for businesses that don’t have the credit to qualify for traditional bank loans.

• Cons: Hard money loans often have higher interest rates because of their short terms and higher lender risk. These loans also require collateral, which can present a barrier for businesses without many assets.

Acquisition

Hard money loans enable you to “buy and hold” or “buy and resell” property quickly. They make expanding your business easier, whether you need more space or want to take over more territory. If this is the first property for your business, you can use the new property to secure the loan. Hard money loans also give you an advantage in the market because you can make a cash offer.

Rehab

Hard money lenders can base your loan on the ARV or After Repair Value of the property, giving you more than its purchase price. You can then use the extra funding for the renovations. If you’re flipping properties, the faster you can get to work, the faster you’ll build revenue. Hard money lenders approve loans in a matter of days or hours versus the several days or weeks you might wait on a traditional mortgage. If you don’t plan to retain the property for 25 years, you won’t want to pay for a 25-year loan.

Bridge Financing

Bridge financing covers your immediate costs while you wait for another source of funding, whether it be a mortgage or revenue. Investors often use this financing for income-generating properties like hotels and rentals. The bridge loan pays for the cost of the property, which you can pay down once the property starts earning. Rehabbers use them to bridge the gap between their initial investment and the property’s resale.

Commercial Mortgages

Commercial mortgages are long-term loans designed for investors who intend to retain property for many years. In contrast to hard money loans, they don’t necessarily require existing assets to secure. If you’re looking at a loan from a bank, the SBA, or the USDA, you’re looking at a commercial mortgage. They often have amortization periods that outlast the loan term, reducing the interest you pay over the life of the loan. Since they’re less risky for lenders, they come with lower costs than hard money loans.

• Pros: Commercial mortgage payments are less than what you’d pay on a hard money loan, which lets you keep more capital each month. They also require lower down payments and have lower interest rates.
• Cons: Commercial mortgages take longer to approve and can have a lengthy application process, which isn’t ideal if you need to act fast.

Long-Term Ownership

The average commercial mortgage is 7-10 years with a 30-year amortization schedule. That makes them the best choice if you’re retaining the property in your portfolio rather than reselling. Longer-term loans – up to 25 years for an SBA loan – are also available to reduce costs even more.

Buying Over Time

Commercial mortgages allow you to build equity. As the balance decreases with each payment you make, the property appreciates, adding to your overall equity position. You can leverage that equity to finance other investments. With a variable-rate loan, you can potentially pay less for the loan overall than if you paid for the property all at once. That’s because your interest rate can drop over time.

Reducing Down Payment

Commercial mortgage down payments can be as little as 10% of the loan. That’s 10-20% less than a down payment for a typical hard money loan. That makes mortgages a better choice if you don’t have the cash for a large down payment. Lenders expect you to be around for the long term, so they view these loans as less risky.

Despite the differences in hard money loans vs. commercial mortgages, you might still wonder which fits best with your particular business’s overall goals. The easiest way to get over this hurdle is to meet with a broker. Our brokers save you time and money by matching you with the right lenders faster than you might find on your own. Because of our exclusive lender relationships, we can also find better deals.

Whether you’re investing for the short or the long term, a broker is your best tool to get it done right.

The post Hard Money vs Mortgage: When to Choose What appeared first on Business Loans & Commercial Financing.

Financing is key to any commercial real estate deal. Without it, there is no deal. While some super brokers hold both a real estate license and a broker’s license, most do not. If you’re not dual-licensed, partnering with a loan broker is key to closing deals smoothly and quickly. We handle the financing your buyers need to back the deal. Plus, we take the load off your desk. Still not convinced? Here are more ways a loan broker can boost your real estate business.

Contingency Clauses

A financial contingency clause in the real estate agreement protects your buyer from liability if they hit an economic barrier. Having the buyer back out, however, doesn’t do either of you any good and doesn’t endear you to the seller either. All three of you want to close the deal smoothly and a loan broker can facilitate that.

We build our business on forming lender relationships so we know who’s more likely to approve the financing your buyer wants. Many lenders will turn down a loan if they don’t receive a complete application the first time. Some lenders won’t even reveal the reasoning behind a loan denial or follow up to ask for more information. A broker will help your buyer gather all required materials into a competitive application package and secure a pre-approval. This way your buyer can stay protected and is more likely to stick with the deal.

Lenders like to remain open to a range of borrowers, but may only specialize in one area. Loan brokers know which lenders to target for your buyer’s industry and property class. Don’t let buyers waste time shopping around for the perfect lender. Don’t waste your time on bad lenders. We filter out the bad apples and the bad deals, saving you and your buyers time, money, and hassle.

Financing at Every Level

You don’t need a loan broker’s license to know many types of loans exist. Not all lenders, however, offer all loan types. If your buyer isn’t sure which loan category to look for, we can help them assemble a multi-layer loan approach that covers their needs. We can also help borrowers select from a range of financing types prior to packaging. Our broad selection of financing solutions lets you stay flexible with buyer demands.

We have options from senior debt lenders like banks and traditional lenders. This part of the capital stack makes up the majority of the financing. It’s usually the longest-term and lowest-interest part of the package. Our lenders are experienced, reliable, and in it for the long haul. With a deep understanding of the mortgage industry, they’re dependable and transparent.

Mezzanine loans are essentially a bridge between senior debt and equity financing. Mezzanine lenders are often specialized and take on more risk than traditional lenders. Therefore, they are more selective when approving CRE loans. Since most mezzanine loans aren’t secured by collateral, they cost more than loans offered by senior debt lenders. Working with a broker reduces the costs associated with mezzanine financing through exclusive lender deals.

Brokers connect directly with equity investors eager to invest in your buyer’s industry. Equity investors usually want a different view of your buyer’s business than a traditional lender, since they’re focused on growth. We help present your buyer’s deal in the best light to attract investors who will compete for a chance to finance it. Let us put together a clear return profile they can’t resist.

Marketing Support

Buyers looking to purchase real estate are looking for property and financing. So, it makes sense that real estate and loan brokers would have many of the same clients. When our borrowers want to connect with properties in their area, we want to refer them to a real estate broker we know and trust. That could be you!

Lenders commonly use brokers to find investment deals. This relationship allows us to streamline the financing process by facilitating contact with buyers. You can think of our brokerage as the hub where lenders, buyers, and real estate professionals meet. When you help buyers navigate the sale smoothly, they talk, and word of mouth is a powerful marketing tool that generates leads.

• In a nutshell, having a relationship with a loan broker:
• Provides pre-approvals for your buyers
• Ensures a complete application goes to the lender
• Supports your marketing efforts and generates leads
• Offers easy access to flexible financing at any level
• Updates you during the financing process to help you stay on track
• Filters out bad lenders so you and your buyer save time

If you want to make strides with your commercial real estate business, partnering with a loan broker can make it happen. Contact us today about building a referral relationship so that together, we can close more deals faster.

The post Close Consistently: The Value of Broker Partnering appeared first on Business Loans & Commercial Financing.