|Posted by: Abdul Apr 23 2004, 11:43 AM
|I run a convenience store that I have to pay a rent every month, I would like to buy that property. My question is that what do I need to do or how do I apply for a loan on what basis and can I get a loan more than a property's value? Any helpful institutions who could provide my that kind of information? Any help will be highly appreciated.
|Posted by: loanuniverse Apr 23 2004, 01:09 PM
Your question: ….what do I need to do or how do I apply for a loan on what basis and can I get a loan more than a property's value? has two answers.
The first is that this type of loan is called an “owner occupied commercial real estate loan”. The way that it is usually underwritten is by analyzing the operational cash flow of the convenience store and once this is computed, a determination is made on whether this cash flow is sufficient to repay the loan used to purchase the property. The lender is going to require financial information on your business and yourself in order to compute this operational cash flow so at a minimum the lender will require:
- Three years of financial information on the convenience store. Preferably accountant prepared financials or at a minimum corporate tax returns.
- A personal financial statement on yourself.
- Personal tax returns for the last three years.
In addition, it will be a good idea to create a curriculum vitae of yourself specially if you have a long history of managing convenience stores. This will give the lender an idea of how well you know the business.
The operational cash flow of your business can be computed in a couple of different ways, but most lenders use the traditional cash flow, which is simply your “net income” plus “depreciation” plus “amortization” plus “interest expense”. The resulting number is called Earnings Before Interest Depreciation and Amortization or “EBIDA”. The other method is UCA cash flow, but it is used much less. You can learn about both in other sections of this website.
The second part of the question …. can I get a loan more than a property's value? has a complicated answer, but the truth is that most likely you can not. The lender requires a certain cushion since the appraised value of the property is not what the lender gets in case they have to liquidate the collateral. Loans like the one you are thinking of usually have a maximum 80% loan-to-value.
Good luck and hope this helps.
|Posted by: Guest Apr 24 2004, 12:05 AM
|Thank you very much. Its a big help to start with.