Board Topic: BUSINESS LOAN W/O REAL ESTATE
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BUSINESS LOAN W/O REAL ESTAE

Posted by: DENNIS Feb 22 2004, 04:24 PM
I AM CURIOUS ABOUT LOAN CRITERIA FOR AN EXISTING BUSINESS THAT IS IN RENTAL LOCATION, NO REAL ESTATE INVOLVED. SALE PRICE OF 110,000.

Posted by: loanuniverse Feb 22 2004, 07:18 PM
Dennis:

Well in this situation, we are talking a pure business loan. Therefore, your loan request will be analyzed from different angles. The following is a list off the top of my head:

Cash flow from operations must be enough to cover debt service This means that if you get a loan to buy the business for $70,000, the business itself must provide enough to repay the loan “both principal and interest” within a reasonable amount of time…. In this case I would say 5 to 7 years. You could probably get a longer debt amortization with a government program. Go to the SBA page to find out about their loans.

You must provide enough equity so that a maximum debt to worth of 3.00X is in place once the purchase has gone through. This is not set in stone, it really depends on the lender, but I have found that 3.00:1 is a good “rule of thumb”. Keep in mind that we are talking about the business balance sheet here, not the purchase price.

What is your experience running similar businesses? In order of what looks best for the lender: 1- You are the manager of the business, have been running it for the owner for several years and you are purchasing it from the owner. 2- You are an owner operator of a similar business or businesses and can show a successful history in the industry. 4- You are a manager of a similar business. 5- You have management experience. 5- You have experience in the industry {not management} 6- You have no experience in the industry.

Personal financial strength and personal credit history When you are talking this amount of money, the lender is pretty much underwriting you. If you have a not so good credit score “under 600” or do not have any other assets that can be counted on to keep the business going in case of a shortfall, then this is a weakness.

The industry of the business that you are buying Certain industries are not lender friendly. Restaurants and Gas Stations come to mind.

Hope this helps.

Posted by: Guest Mar 2 2004, 04:31 PM
I WOULD LIKE TO KNOW HOW TO GET STARTED AND CAN I PURCHASE A BUILDING WITH NO MONEY DOWN

Posted by: loanuniverse Mar 3 2004, 11:34 AM
QUOTE (Guest @ Mar 2 2004, 04:31 PM)
I WOULD LIKE TO KNOW HOW TO GET STARTED AND CAN I PURCHASE A BUILDING WITH NO MONEY DOWN

Here is something that I wrote a few years ago about this topic, and I think it is still true:

"...........Obtaining owner financing, where you will not have to put any money of your own, and where the seller keeps a second mortgage on the property sold is very rare. I have personally handled hundreds of real state files, and I have not seen any deal structured like that. While working on the platform as the first contact for customers looking for financing, I saw only one proposal that was structured with the current owner carrying a second (out of approximately thirty requests).

As a potential purchaser who knows of the rarity of such a financing arrangement, wouldn't your warning detectors go off if the seller is very willing to accept such a proposal? An owner that is selling his property with seller financing is probably out to get himself a better price for the property than the true market value.
.................
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