Board Topic: Help with Financing a commercial loan...
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Help with Financing a commercial loan...

Posted by: IntheMix7 Oct 19 2004, 09:11 AM
I'm trying to purchase a commercial building that my business is currently occupying... The Owner is willing to sell and at a price that we both agree upon...

My problem is finding financing. First of All, my credit rating is not high enough to get me a decent loan. Second of all, b/c it is a commercial loan, the down-payment is going to be higher than what I can afford to produce.

Otherwise, everything works out OK. For example, my rent is about 150% of what my mortgage would be, and considering the fact that there is another leasable unit, currently being occupied, I could have over half of the monthly payment from this alone.

I have people wiith decent credit willing to co-sign with me, and I can come up with about 10% of a downpayment (but not 20%). Is there any way to make this happen considering my financial situation? I would actually end up saving money every month, and get out from under the landlord, who basically owns the $50,000 buildout that I did in the building.

Is there any hope? Or should I just give up completely?

Much thanks to those who reply.

Posted by: Myron Alford Oct 19 2004, 09:35 AM
Financial professionals need to register, please read the rules.

Posted by: loanuniverse Oct 19 2004, 10:11 AM
Well, if the cash flow of the business is going to benefit from getting the loan {assuming that you did not use a thirty-year amortization, after all this is not a residential loan}, then the loan makes sense and you might be able to pull it off.

The first thing that occurred to me when I read your post was that this sounds like an excellent choice for an SBA 504 loan. This particular government program is created for the purpose of helping businesses buy their facilities, and it would allow you to get a loan with just 10% down.

The program works essentially by partitioning the deal into three parts.

A 50% first mortgage provided by a private lender. This lender will be in what is called a first position, and would get paid first in case of trouble.

A 40% second mortgage provided by the SBA. The government comes in with a junior position and gives the private lender an incentive to lend the money.

A 10% down payment. This is the money provided by your business.

Regarding the fact that there is a unit being occupied by another business, you might want to check with the SBA about the occupancy rules for qualifying. I think that you are ok with 50% occupancy, but you might want to visit the website to make sure.

If the 504 idea does not work you can approach non-bank lenders that might have similarly structured plans, but I would try a 504 loan first.

Posted by: Guest Oct 19 2004, 02:40 PM
I have tried the SBA route, and exhausted much effort in putting together a package, going over it several times with the SBA loan officers, and giving them exactly what they asked for only to be told at the end of the process that "I didn't give them enough to work with." Which was not a very good explanation, since I gave them exactly what they asked for.

Depending on who I talk to, I get either a recommendation to go with SBA or to stay away from it... since I've been down that road, I'd rather not go again.

One of the problems is that I'm in-between being a startup and an existing business.... you see, I have been in business for about two years, but there have been no actual profits filed on my taxes because of the start up costs involved (as per my accountant's advice). So, as you can see, my tax returns don't show a margin of profit high enough for an SBA.

What are some other non-bank lenders that I might have as an alternative?

My business happens to occupy more than 50% of the actual space (it's about 55/45) and I DO live in the building, if that makes a difference. It's zoned commercial, but could I possibly qualify for a residential loan, if I'm living in the building? (Just a thought).

I'm basically down to looking for creative ways to make this happen. I realize it's a tricky situation to be in, though people keep telling me I should be able to get a loan, since the numbers actually work out in my favor.

Thanks again

Posted by: loanuniverse Oct 19 2004, 03:12 PM
A couple of things:

One: Normally the SBA will work through local lenders and does not deal with the public directly. Being that lenders see hundreds of deals, I would have to give the lenders the benefit of the doubt when it comes to the request for additional information. I would look for help from someone knowledgeable in this area {preferable someone that would do it for free such as SCORE volunteers}

Two: ”… but there have been no actual profits filed on my taxes because of the start up costs involved…..” Are we talking about amortization of “startup costs” here? A lender is going to look at cash flow and not income for its repayment. Two years in business means that you are no longer a startup in my opinion. You are a few years away from being established, but you are not a startup. Now if your cash flow is still negative, We got a problem with any lender.

Three: ”… What are some other non-bank lenders that I might have as an alternative?…” There are a few frequenting this board, but some might have lost interest when you mention losses instead of profits.

Four: I very much doubt that you could get a residential loan, but you can try. I always encourage people to consult local lenders, and you should visit at least two lenders by the end of the week and present your situation.

I also have to be honest about the possibility of getting a loan with losses shown in the two years of existence. “Chances are slim”, but the worst thing that you could do is not talking to someone that can go over the numbers with you. There is very little benefit from talking it out with someone over the Internet.

Posted by: loanprincess Oct 21 2004, 10:21 AM
In The Mix
I can help, I know of private lenders that will do a commercial loan with scores as low as 450 fico's, give a call or email me and I will forward the info to you.

Loan Princess

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