Financing transactions is a critical element in the success of any business, particularly one that is operating with an eye toward expansion. Access to financing options is essential for a business to be able to take advantage of growth opportunities. Of course, the best financing option will depend on the nature of the business, the nature of the transaction, the company’s current financial situation and other factors.
Some financing options carry associated costs or risks that company leadership must understand in order to make good decisions. An attorney who is experienced in the financing of business transactions can not only advise you as to the benefits and drawbacks of the various options, but also negotiate terms and review contracts on your behalf.
Common Options for Financing Transactions
Although there are a wide range of possible options, there are a handful of possibilities that arise frequently in business; some are even designed specifically for these types of transactions. While working with an experienced attorney is the best way to learn how each of these options would play out in your particular circumstances, we have provided a brief overview of some common financing options below.
Conventional Loans
A conventional loan may be the most straightforward option, but that does not necessarily mean that a conventional loan is the right answer for your business. In some cases, you may be unable to obtain a conventional loan in an amount adequate for your purposes. The interest rate and fees associated with the loan, as well as other terms, may or may not be to your advantage.
Despite these factors, many executives default to pursuing conventional financing simply because they are familiar with the basic terms and expectations. With an experienced business lawyer at your side, you will have the tools you need to make the best decision possible for your business, based on factors specific to you and the transaction in question.
Small Business Association (SBA) Loans
Small Business Association (SBA) loans are specifically designed to assist some small businesses that would not qualify for conventional financing or other common options. These loans are guaranteed by the government, and as such lenders have less exposure in making a loan to someone who might otherwise be a higher-risk borrower.
While SBA loans offer an opportunity to business or potential business owners who might otherwise have difficulty obtaining financing, obtaining these loans can be complicated and time-consuming. An attorney who is experienced in SBA financing can guide you through the process, ensuring that you have properly assembled documentation and advising you regarding tax and other consequences associated with this type of loan.
Construction Loans
Construction loans can be complicated in comparison to conventional financing. First, there is typically a construction loan fee, which is payable at closing. Because this fee is based on the full loan amount, but payable at the outset when only a portion of the funds will be available, it is essential that you know exactly what to expect and plan for this obligation.
Secondly, construction loans are disbursed differently than conventional loans. Although the terms will vary from loan to loan, construction loan proceeds are paid out over time, based on a schedule or timeline that is designed to ensure that the funds last through the project. This, of course, requires both careful planning and careful negotiation, since a gap in financing can completely derail a project.
An attorney experienced in business transaction financing can not only negotiate on your behalf, but will be able to advise you of common pitfalls and considerations to help ensure that your project stays on track.
Commercial Mortgage Backed Securities (CMBS)
Commercial mortgage backed securities loans are perhaps the most complex type of financing available to a company or individual seeking to fund a commercial real estate transaction. On the surface, these loans appear desirable because they offer low fixed rates and are often offered on a non-recourse basis.
However, strict regulations and a complicated system of multi-tiered servicing can create limitations and complications across the life of the loan. Anyone considering CMBS financing should thoroughly educate himself and carefully consider servicing needs.
Get Legal Guidance on Transaction Financing
Finding the right financing at the right terms can be as critical to the success of a business transaction as any other element. When you have important financing decisions to make that will impact the success of your business, get the guidance you need before you make any decisions. Contact KPPB LAW for more information.
