Alternative Financing Options To Jumpstart your Commercial Real Estate Business
The higher income potential, steady cash flow and lower vacancy risks of commercial real estate make it an attractive investment strategy. Thanks to the internet, it’s now easier to take advantage of alternative funding options that may have gone unnoticed before. Here are a few ideas to consider if you’re researching such an investment.
Merchant Cash Advance
Merchant cash advances (or business cash advances) are designed to let you use money you have coming to you when you need to use it. Future credit card receivables are sold to a third entity for a lump sum of cash. This can provide you with the working capital you need to diversify or take advantage of unique opportunities. The paperwork required is minimal and you can often receive the funds in days
Accounts Receivable Financing
Also called factoring, accounts receivable financing can be viewed as outsourcing your accounts receivable department. You sell invoices that are 30 to 90 days old at a discount to a third party who then collects the funds due. This can be particularly useful for startups since the finance terms are based on the credit standing of your customers, not yours. As with a merchant cash advance, it usually takes just a short time to receive the funds.
Small businesses often struggle to win approval for conventional loans. Through partner lenders, the Small Business Administration offers loans that are partially backed by the US government. Because of government involvement the loan process can be time consuming, but the program offers important benefits like small business development centers and volunteer counseling from experienced, often retired, executives. These additional programs can be of great help in establishing a stable commercial real estate business.
In asset-based lending, a business offers some percentage of its assets to a lender. The assets can include accounts receivable and inventory as well as equipment. The interest payment is calculated only on the funds drawn so the approach can be more flexible and effective than a traditional loan.
Hard Money Loans
Hard money loans can open the door to a commercial real estate career because they are typically based on the value of the property instead of the borrower’s creditworthiness. They are usually taken for a short term and for the purpose of buying or refurbishing commercial property.
Starting any new venture requires due diligence, and investment in commercial real estate is no different. Understanding the available financing options is necessary in order to make a decision that maximizes the odds of your success.