A year ago I took a 2 year lease to purchase on a Trading Post/Cafe/Rv park/Gas station/Catering Service.

I have spent every penny to keep an aging building functioning and am now reaching the end of predicitable repairs. I have decided that this busienss is a good investment (I expect it to appreciate significantly in the next 10 years).
I have been making payments of $3000.00 per month and $2000.00 of that goes into fund for down payment. I know that my monthly payments on a $250,000 loan would be less but how much less at today's rates?

Any insight into this situation would be appreciated.

Thanks
Donna

Donna:

The first thing that comes to mind after reading your post is = ”is the sales price listed in the lease purchase agreement?, and if the price is listed, how does it compare with the market value of the property?”

Now, I am going to play a little bit of a Devil’s advocate….. If those are the only numbers in play {$24,000 credit from lease and $250,000 loan}, then the purchase price is $274,000 and your loan-to-value is 91%. Even if the lender looked at the lease credit as equity, you would be hard pressed to find someone willing to finance. This is assuming that the appraised value comes in at $274,000 or more. It could very likely come in lower as lease-purchase are often used to get a higher than sales price. If the appraised value came in at $260,000, the $250,000 loan would result in a 96% loan-to-value.

How to make it happen?

In commercial lending there is no uniformity of products, and the underwriting criteria is varied. There are certain things that would make this deal possible such as:

1- Getting an SBA 504 loan. The 504 program is designed for businesses to be able to afford the purchase of their locations with as little as 10% down payment.
2- Having a full year of operations for the business would help.
3- The business producing enough cash flow to service the debt would help.
4- A good credit score would help.


Your question : I know that my monthly payments on a $250,000 loan would be less but how much less at today's rates?

There is no single rate that can be quoted. I can assure you that no FDIC insured institution will make the loan at 90% or above. Well, I guess they could, but why would they want to have a regulatory exception is beyond me.

If this was an established business with strong cash flow, no more than 75% ltv, and a good guarantor, you are looking at around 7% {give or take 0.5%} under a 25 year amortization. This means about $1,800 a month in payment giving you a $1,200 savings from your existing payment.

Your case would have to be higher, and would need SBA guarantee or 504 to be approved.