I'm looking into the purchase of a country store, but have no idea about loans for the purchase of an existing business.

The store is a combination gas station (2 pumps), small grocery store, and a cafe. The majority of the gross ($750,000 last year) comes from the cafe.
The curent owner has been in business for 11 years.

The selling price is $210,000 and includes the present inventory. About $60,000 is the estimated value of the building and land.

I have little cash to put down, about $5,000. I own two properties that appraise at about $650,000 with mortgages totaling $485,000.

I'm retired and have about $5,000 per month income, with $3,000 that is disposable.

I have a 4 year Businees Degree and about 2 years experience with running a lunch counter that had 4 hourly employees and 1 salaried manager.

The current owner and I both have business plans. The current employees have agreed to stay, the owner agreed to stay for 30 days during the transition, but needs to sell because of 2 heart attacks.

If the loan is possible, the owner and I would get into the books to get the actual net, but for now I only know that the net is over $50,000.

Any ideas?

Thanks
Dave

Dave

If the net is correct, it does sound like a good opportunity. The problem is that I don’t see any way to do this without accessing that equity. I do not know what kind of properties those are, but you are already at 75% ltv, so at most you are looking at getting an additional 10% to 15% out of them. As an analyst, I would like to see how your global cash flow is before and after all of the borrowing needed.

From the point of view of the lender, the one tangible asset to be financed in the purchase is the real estate and being located in the country will be a pain to sell in case of foreclosure.

You are probably going to need to get the current owner to take a substantial note as partial payment secured by a junior lien in the assets of the business. You need to access the equity and get an amicable community lender to lend you the rest.

I would float the idea of a note and see if the seller is willing. If he is then you can talk to a couple of lenders to see if they are interested and to find out how much money they need to see from you in order to make it happen. The loan is small enough that you will probably have to convince just one VP, so there is a good chance.

Good luck

Look for a local preferred lender at

http://www.sba.gov/gopher/Local-Informatio...ferred-Lenders/

With an SBA 504 loan, you may be able to put down as little 10% + closing costs from your own funds. $5,000 won't be enough however. There are residential loan programs that will allow you to leverage up to 100% of the other properties you own, assuming they qualify. This might get you the additional cash you need.

The other alternative that has already been mentioned is aseller held financing. If you are looking at this, keep in mind that lenders will still want to see 10% from your own funds into the deal.

I don't think this will work as a 504 due to its size {real estate is worth only $60M, and most of the purchase price is for the business going concern}, but it does not hurt to ask and sba knowledgeable lender

equity from existing properties, seller financing and a small bank loan seem like the way to go.

Thanks for the response and information.

I was looking at the 125% home equity loans, but most are for a maximum of 75k. I am looking to use the equity in the two houses, either as collateral or finding a way to get cash out for the store purchase.

The two properties are both single family. One in Southern California the other is lake front in the South. The Calif. house was financed at 90% last month (appraised at 450k, financed @ 405k) but the appraisal has just shot up about $40,000 this month due to a recent comp in the area.

The lake front is financed at 40% (appraised at 200k, financed at 80k).

As for the global cash flow, total income is 5400, total mortgages are 2300, one credit card that I pay off monthly, no other revolving or consumer accounts. Debt to income is at 47% without the store purchase.

Is there a 125% home equity loan available for over 75k where I would still meet the D/I ratio?

I really don't want to deal with the government (SBA) and their red tape.

Thanks
Dave