There are numerous significant distinctions between commercial real estate investing and residential real estate investing. Of over 20 major commercial loan differences, several important issues will be covered in this business financing article and other commercial financing elements such as SBA loan refinancing will be described in additional reports.

With the increasingly chaotic investment climate for residential financing in the United States, more residential real estate investors are exploring commercial real estate and business finance opportunities. It is important for prospective commercial property owners, business owners and business investors to educate themselves about options for the business loan and commercial mortgage environment they will be facing.

Stated Income Commercial Mortgage and Commercial Loan Opportunities

Stated income commercial loan programs will preclude the need for personal tax returns to qualify for a business loan. However the stated income commercial mortgage will not change documentation requirements involving income for the business being purchased. In contrast to residential mortgages, no doc (no documentation) loans are not possible for commercial financing.

Business Finance Minimum and Maximum Amounts

Commercial property loans and business opportunity financing less than $100,000 are not routinely available. A typical maximum for a stated income commercial mortgage is $2 million. Several common business financing possibilities are limited to a $5 million maximum.

Down Payment Requirements for a Business Loan

Down payment requirements for buying a business commonly vary from 10% to 25% or more. The specific amount will depend on business experience of the borrower, requirements for business opportunity business finance, type of business and credit scores.

Business Opportunity Financing and Business Loan Interest Rates

Interest rates for a business loan are generally higher than residential financing and rates up to 13% and even higher are possible. It is possible to obtain both fixed and variable commercial mortgage interest rates. Business opportunity financing typically has interest rates 1-3% higher than a comparable commercial real estate loan situation.

Appraisals for a Commercial Mortgage or Business Opportunity Loan to Buy a Business

It is normal for commercial property and business opportunity appraisals to require over a month to complete. Commercial appraisals are much more complex and expensive than residential appraisals. Business opportunity financing and commercial loan value is traditionally based on business income rather than a comparable property analysis used in residential appraisals.

Business Loan Personal Guarantors for Buying a Business

A personal guarantee from all principal owners is usually a standard requirement for business finance situations even when a business is titled under corporate ownership. Because of this, individual credit scores of the business owners will be an important factor to qualify for a business loan. Individuals should expect to personally guarantee a commercial mortgage if they own over 20% of a business.

Other Important Business Loan Differences Compared to Residential Financing

As noted previously, there are too many differences between residential financing and business finance situations to describe adequately in one article. Some of the critical issues discussed in separate reports are how to avoid common business loan problems, SBA loan financing, balloon and recall provisions for a commercial mortgage, business opportunity financing and special purpose commercial properties.

Copyright 1995-2007 AEX Commercial Financing Group and Stephen Bush. All Rights Reserved.

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