Loan for small car audio business

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Posted by: Aaron Aug 18 2003, 05:06 PM
Hi! This site is one of the best I’ve seen. I am an owner of a small car audio business(4 yrs). I have been doing this mainly for a hobby. I work alone and I am ready to make this my full time job! My landlord wants me to buy the property and land. He is going to be getting divorced and wants to sell. I occupy a small part of the building and the rest is occupied by a mechanic (another business). I have talked to my family and they are willing to help with financing by using equity in their home or co-signing, etc. I currently sell car audio and performance products along with installing them. If I purchase the entire building I plan to expand into the rest of the building and add more services. I plan to do service work (repair, oil changes, etc.) and paint work (small dent and scratch). I already have three employees ready to work with me, which 2 of them have just started helping me recently. I need to know what the best loan to get would be and what I should have to qualify for the lending. I want to purchase the property along with some new equipment for the expanding services. I have come up with a loss on my taxes due to reinvesting in the business which I won’t be doing this year except for this loan. The Landlord need to sell as soon as possible. I have had some small loans (open notes)with my current bank that I usually pay off and re-do again, which I am sure could help me, but they have high rates. Would it be better to use a local bank or find a commercial mortgage company? I am getting the property looked at(quick appraisal) on Wed. to see if it is worth the asking price of $89,000 (or more to cover the extra I would like to purchase equipment). It is located in VA, 22835. It is a Garage(zoned commercialor industrial) with 3 bay doors, an office, 2 other rooms (one my showroom) and a bathroom. The land is 4 Acres. Your Advice is greatly appreciated! smile.gif Thanks!
Posted by: loanuniverse Aug 19 2003, 06:38 PM

Glad to hear that you have plans to grow your business and expand by acquiring the property you are renting. Let me go over the case using the information you provided. To make it easier to follow lets break this down in steps.

First, let’s narrow the objective: The primary objective is to buy the property and buy some equipment to be able to offer more services. Your objective is not to get financing, that is just a tool to grow your business.

Lets look at your strengths and weaknesses from the point of view of credit. A big weakness that I see from the limited information provided is that you show a loss in your taxes. Assuming that you don’t keep financial information on your company, the loan will probably be underwritten using the taxes. The ability to repay the loan must be shown, and this is difficult to do without a positive cash flow.

On the positive side, the fact that you have business credit experience, people willing to help, and the fact that the amount you are looking to borrow is relatively small are factors on your favor.

Now to your questions:

I need to know what the best loan to get would be?

In my opinion, the best type of loan to get in your case would be the following in order of most beneficial to less beneficial.

1- 100% Seller financing. If the seller owns the property, ask him if he is willing to hold a promisory note on the property and let you pay him monthly amortization payments. Benefits: fast no underwriting easy qualifying. Low cost documentation only need an attorney to draw the note and file the mortgage.
2- A combination of seller financing and a Bank loan {preferably an SBA loan} Benefits: you might not need your own money for the transaction as the loan for the seller being in a junior position protects the primary lender.
3- An SBA loan. Benefits: Easier to qualify than a regular bank.
4- A Bank loan. Benefits: You still have reasonable rates as most banks give good rates.
5- Another finance company: Benefits: Probably easiest to qualify for as some of them will look more at the property, the guarantees instead of making sure that your business can repay.

what I should have to qualify for the lending?

I know that the whole financing matter can be a bit complicated. I suggest that if the seller can’t provide you financing that you go see a loan officer. Look for those banks that advertise as SBA banks. Do not be afraid to talk to someone frankly, the worst thing they can do is say no and waste a couple of hours of your time. I also suggest you look for a local chapter of in your area. They are a team of retired executives that can help you with your business. It is one thing to give advice from 2,000 miles away. It is another to have the real numbers and situation in front of you to go over the different scenarios/

Good luck and I hope this helps.
Posted by: Aaron Aug 20 2003, 06:10 PM
biggrin.gif Thank You! I really appreciate your help! I will check out the options you listed and see what is best for me. I’ll let you know what happens! Thanks Again!

Aaron Moler
Eargasms Audio Installations
& Performance

Author: Commercial Loan Underwriter