Board Topic: Business loans thinking of buying a business, need info
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Business loans

Posted by: Anthony Feb 11 2004, 01:04 PM
I am thinking about buying a business (gas station, c-store). If i do buy the business is it possible to refinance the business loan and how long would I have to wait to do this if I can?

The reason to do this would be to purchase another business, not to reinvest in the current?

Posted by: loanuniverse Feb 11 2004, 10:29 PM
Anthony:

Let me get this straight, you are buying a {gas station/convenience store}, In order to close on the purchase you will obtain a loan. Now your question is how long would you have to wait to refinance this original loan so that you can cash-out and use the money to purchase another business….. Well, there is no way to figure it out really, the short answer is ”when the numbers are there”. The long answer is kind of complicated.

Usually gas stations are financed using a percentage of appraised value {as in the value of the real estate}. The maximum loan-to-value is 65 to 75% for most banks. {please take into consideration that not all banks finance gas stations and this is not just because of environmental concerns, but due to the fact that the property is highly specialized}. For simplicity sake lets say that this gas station is being purchased for $1,000,000. This means that your loan will be $650,000 or $750,000 and your equity will be $350,000 or $250,000.

This also means the company has to have enough cash flow to pay for the original loan.

The long answer: You will be able to refinance once the following is met:

1- The gas station has appreciated in value and the business cash flows enough to meet the debt service of the new loan amount.

2- You get a lender that has more lenient terms. Lets say you originally get a loan with a 65% loan-to-value and a year later you get another lender that is willing to lend 80%. Even without an appreciation in value you qualify for more money.

3- You have amortized the original loan enough that even without appreciation or more lenient terms you can do a cash-out.

4- A little bit of all three.

Hope this helps.

Posted by: Anthony Feb 12 2004, 12:11 PM
Thank You very much. It helped!!
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