Using Mortgages for Business Leverage and Equity

Small business owners find profitable ways to leverage the equity in their real estate. US Business Finance Corp works with small business owners to obtain residential and commercial real estate loans as a route in securing operating capital and building an asset base. When deciding whether to pursue an interest only, Adjustable Rate Mortgage (ARM), or a standard 15 or 30 year fixed rate mortgage, consider the following points.

1. How long do you plan to own the property and do you want to build equity in the property? Part of a business’s real estate strategy may be tied to the projected growth. For instance, buy a smaller building to begin with while planning to build or move to a larger building or a more strategically placed building later. Short-term ownership does not usually allow enough time build up a large amount of equity, since most of the payments go toward interest. Long-term home mortgages build the borrower’s equity in the real estate until, of course, the property and its appreciated value belong to the borrower.
2. How much of your monthly budget can you put toward your mortgage? Lenders pre-qualify you for a mortgage based on factors like current income, credit score and debt-to-income ratio. However, businesses also need to consider how the mortgage payments affect cash flow – preserving the cash flow allotments to profit generators such as inventory and payroll. In any budget, business or personal, you may have a variable in how much discretionary income you may want to put toward your home’s equity instead of movies and dining out.
3. How much are you prepared to place as a down payment or how many points (interest paid in advance) are you buying? Having 20% of purchase price ready as a down payment, along with a very good credit score are necessary to qualify for the FHA loans with the best interest.
4. Research several local lenders to see who has the best overall mortgage package. Study the fine print. Check to see if the loan package with the lowest interest rate is charging more in closing costs that will end up in the mortgage principle – effectively raising the interest that you will pay.

For businesses, planning a mortgage payment rests on long-term plans to build equity and short-term plans affecting cash flow. US Business Finance Corp assists businesses applying for business loans. Whether you are searching for commercial real estate financing for your business or have plans for expansion or renovation of your current business, call on US Business Finance Corp. We can help you through the entire mortgage process from application to funding and, for larger financing projects; we can assist in the preparing the presentation of your business plan to improve your ability in getting your commercial loan.

Filed under: Banking Industry, Money Matters - Personal, National Economy