|Posted by: Richard Small Jan 4 2004, 04:02 PM
How can I get a loan to purchase the building where my business is?
My landlord told me that he is putting the warehouse for sale on February for $450,000. I am already paying him $3,000 in rent and using 4,000 square foot. The building is 5,000 square foot and the rest is vacant.
The problem is that I have heard that you need 20% to qualify for a commercial loan and that would leave me with no money to pay my suppliers.
Business has been in business for 4 years and making money for the last two.
Any help would be apreciated
|Posted by: loanuniverse Jan 5 2004, 03:09 PM
You are correct regarding the 20% requirement for owner occupied properties. Most lenders like to see this kind of cushion between the value of the collateral and the amount of the loan. This relationship is called ”loan to value”. In your case, you would need $90,000 of your own money as a downpayment resulting in a loan in the amount of $390,000 and an 80% loan-to-value.
However, there are alternatives to conventional commercial loan products. The first one that came to mind when reading your post was the Small Business Administration 504 loan program. The 504 Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. While there are higher originating fees than a regular loan, it should allow you to buy the warehouse with only 10% down.
What the program does is essentially break down the financing in three portions:
1- A conventional loan that will be funded by a lender for 50% of the purchase price. This loan is secured by a first mortgage on the property and is kept in the books of the lending institution.
2- A second mortgage loan funded by the SBA for 40% of the purchase price.
3- 10% coming as an equity contribution from your company.
The program is run by the SBA with the help of Certified Development Companies. This means that you have to get in touch with one of those. There are usually several in each state. You can find a list of these organizations in the following link:
These types of loans are very common. I have personally underwritten about a dozen of the “bank portion” loans. The people at the Development Companies do these transactions all the time and are able to package your request in a way that meets the program’s requirements. I encourage you to seek one of them out. Of course, you can prepare ahead of time by making sure that you have a good compilation of financial information to present.
Hope this helps.