Short-Term Business Mortgage Loans Step by Step

Business mortgage loans allow you to get short-term financing to expand or save your business, usually through private lenders. Just as your lender owns your home title in a traditional home mortgage, your lender will own your business until your business mortgage is paid off. These loans typically do not come through traditional lenders like banks. You will need to seek private lenders, such as private equity groups or investors, to secure short-term business mortgage loans.

Step 1: Value Your Collateral

The first step in mortgaging your business is finding out what its worth. Take time to assess all assets and potential future earnings. Current assets can be valued at 100% of their worth, while future earnings may be valued at only a fraction of their potential. You have to look at your liabilities such as other debts or outstanding lawsuits. If your assessment shows more liabilities than assets, you should rethink your mortgage plans.  Re-establish your business plan and financial projections to assure your success.

Step 2: Contact Private Lenders

Shopping around for business mortgage loans is the only way to know if you are getting the best deal. Take your financial statements, projections and business plan to several investors or private lenders. You should explain the exact purpose of the loan, how you have determined the amount of money you need and how you plan to pay the debt.  Any lender will be taking a risk when giving you a business loan, so it is best to be upfront and honest with them.

Step 3: Determine the Best Loan for You

Short-term loans can range anywhere from 6 months to 3 years, and interest rate  and term of the loan will vary.  If you offer profit splits, joint ventures or equity to the lender, you will need to be certain you are comfortable with the lender and the terms of the venture.  Offering equity usually includes an offer of control of your business practices and standards.  Some businesses prefer straight interest rate based loans because percentage based loans offer too much control.  qually important is examining the loan type.  For example, an oil company may receive a letter of credit and will thus be able to purchase commodities overseas. An Internet business, however, works differently and may need cash on hand to pay web programmers.  Make sure the payment type fits your business needs.

Step 4: Structure Your Liability

Structuring your liability is a critical component of a business mortgage loan because if you have corporate ownership, you may be held personally liable in case of default. Contact your lawyer and/or insurance broker to fully understand the scope of your risk. You should keep a protective layer between your personal and business life.  If the layer is not properly instituted, it is possible to lose your personal assets, such as your home and assets in the case of a bankruptcy..

Step 5: Pay Your Mortgage First

The key to surviving while in debt is to always pay your mortgage first. Phone companies will have to wait, your employees may have to take a pay cut, but, at the end of the day, you must pay your business mortgage. When you receive a payment from a customer, put it towards your mortgage because you have a lot to lose if you default.