Avoid Business Opportunity Investment Financing Mistakes

Commercial borrowers should be able to obtain improved business opportunity investment loan terms and avoid potentially devastating business finance problems by taking some precautions as noted in this article. Avoiding critical business loan mistakes is an especially essential requirement in securing appropriate business financing terms when real estate is not involved.

A key factor that distinguishes business opportunity financing from other forms of business financing is the lack of commercial property ownership. Although the transaction will usually involve a long-term lease agreement, the buyer is acquiring a business that does not include real estate in the purchase price.

In our experience, the potential difficulties involving factors discussed below are more serious and common than most business owners expect. While we will not be addressing all possible business opportunity financing problems in this article, we will include two of the most severe issues to anticipate and avoid.

Length of Business Financing -

A common mistake when acquiring a business opportunity is to finance the acquisition with business financing that expires within two to five years. One reason for this occurring is the failure to negotiate a longer-term lease, since it is typical for financing terms to expire with the lease.

A viable solution is to insist on a lease that is at least ten years long. This will facilitate business finance terms that can typically be for a ten-year period. It should be noted that the lack of real estate as collateral is a primary reason for most business opportunity financing being limited to a maximum of ten years.

Use of Excessive Seller Financing -

Although nominal seller financing (such as 10-20%) can be helpful to a business financing transaction, attempts to finance either entirely or primarily with seller financing are generally inadvisable. There are several different issues which can result in this being a serious mistake.

If a seller is providing most or all of the business acquisition financing, a formal appraisal might not be obtained. While this appears to offer the advantage of saving the cost of such an appraisal, it also eliminates an important method of determining if the purchase price is appropriate. Alternatively the seller might have previously obtained an appraisal which is used as the basis for determining a purchase price. The problem with a seller-financed appraisal is that it might not be a truly independent and fair estimate of current business value.

Another limitation of substantial seller financing is that it might only be for a very short period of time (perhaps one to three years). This will necessitate refinancing within a period that is not always practical to do so. For example, many commercial lending candidates for refinancing a business opportunity loan will require a loan history of 24 to 48 months.

Solutions and Strategies for Avoiding Business Opportunity Investment Loan Mistakes -

Business borrowers should thoroughly discuss options with a business financing expert before proceeding with investing and financing programs. These efforts will be worthwhile since the potential business finance mistakes described above can be overcome successfully. Business owners should especially look for advisors and resources which will provide relevant strategies and solutions for a business owner to acquire an adequate understanding of complex business opportunity loan issues.

Author: Steve Bush

Steve Bush is a commercial real estate investment loan expert - learn how to avoid business finance mistakes and find out about business opportunity loan strategies at AEX Commercial Financing Group => http://www.real-estate-investment-property.com

Keywords : business opportunity, business financing, real estate, investment, investing, finance, loan, business

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