PURCHASING COMMERCIAL REAL ESTATE TO HOUSE YOUR BUSINESS: |
SBA has an excellent program that assists
small business owners in purchasing commercial real estate to house their business. Buying a building might be easier
than you think. In some cases, an SBA commercial real estate loan can be structured with a minimal down payment such as
10% and the balance of the loan can be amortized for 25 years. Becoming your own landlord is a dream of most small business owners that currently lease. With the assistance of the SBA your dream could become a reality. |
|
Most traditional sources of commercial real
estate financing such as Banks, Savings & Loans, Insurance Companies and Pension Funds, can be difficult to work with
for buyers, brokers and developers. Their terms and conditions are sometimes more restrictive and tighter than the SBA.
Most conventional lenders might amortize a commercial building loan for 25 years but they will attach a five or seven
year call date on the loan. This means that you, the property owner, will be confronted with the issue of renewing the loan with the lender. If they so choose to renew the loan, the lender will dictate the terms and conditions and you will have to abide by or seek alternate refinancing. In addition, there is a good possibility that the lender will charge new fees and expenses in conjunction with the renewal. |
|
Long Terms And Low Loan To Value: |
Here are the main reasons for using the SBA Loan Program to purchase your building: The SBA will guarantee up to 75% of the gross loan up to $1,000,000. Although the SBA has a maximum amount of guarantee authority, most lenders will make a larger loan.The loan can be fully amortized over a period of 25 years with no balloon payments. Most SBA loans are structured with a variable interest rate. However in some cases the bank can structure a fixed rate loan. SBA does currently impose a 3 year prepayment penalty. |
|
Another excellent reason for utilizing the
SBA to buy a building is the high Loan to Value. The SBA requires as little as a 10% down payment on a commercial
real estate loan. The SBA is making a business loan secured by commercial real estate rather than a classic business
loan. Therefore, most of the emphasis is based on the cash flow of the business, historical and projected earnings, and management capabilities, not Loan to Value. |
|
Refinancing Commercial/Industrial Property |
If your original commercial property loan
included a balloon payment, an SBA loan can be used to refinance your mortgage Note on a long term basis. We must be able to verify that the entire loan to be refinanced was used to purchase the subject property and the property was and is not being used in any way for investment or speculative purposes. Also, the balloon payment coming due must be occurring within a reasonably short period of time or the interest rate is excessively high. |
|
Types Of Property |
You can purchase any kind of property as long as it is for business use. The building can be either an Industrial or Commercial Building, a Retail Shop, Office Condominium, or even a single purpose property, such as a Gas Station, Car Wash, Motel, Restaurant, etc. |
|
Two very important facts: The business must occupy at least 51% of the property if the property is being purchased and 60% if the loan is being used to construct a building. |
|
Land Purchase |
As long as the property will be used for business purposes, now or in the near future, you may purchase raw land with SBA loan proceeds. Examples for this type of use could be businesses that need the land to store equipment, vehicles or bulky types of inventory. A business might need the land for a parking structure, or quite simply construction might not take place for a while. |
|
Construction Of A Building |
As long as the business will occupy at least 60% of the total building size, you can use SBA loan proceeds for construction. The construction loan can be structured with interest only payments during the construction phase, and then convert over to a permanent loan for a period of 25 years, fully amortized at the completion of the project. |
|
Although, DGH Financial Services, Inc. specializes in SBA Loans, we can assist you in obtaining both Conventional and SBA Commercial Real Estate Financing. Below is an illustration of both forms of financing and the main features of the two different types of loans as well as a comparison of Loan Guidelines: |
|
Comparison of Loan Guidelines |
Conventional Loan
|
Loan Amount $250,000 - $5,000,000
|
Term 20 years fully amortized
|
Interest Rate Prime + 1.50% to Prime + 3.50%
|
Loan Fee Varies
|
Down payment requirements 25% - 35%
|
Prepayment penalty Sometimes
|
Type of Properties Commercial, Industrial and Retail
|
|
SBA 7a Loan
|
Loan Amount Up to $2,000,000
|
Term 25 years fully amortized
|
Interest Rate Prime + 1.00 to Prime + 2.75%
|
Loan Fee 2% - 3.5% of the guaranteed portion of the loan amount
|
Down payment requirements 10% - 20% (Please Note: that additional collateral may be required for down payments of less than 20%)
|
Prepayment Penalty (First 3 Years Only) During the 1st year - 5% During the 2nd year - 3% During the 3rd year - 1%
|
Type of Properties Commercial, Industrial, Hotel and Motel, Gas Stations, Auto Repair, Car Wash, Health Care Facilities, Mixed Use, Retail, Restaurants, any other Single Use Purpose
|
|
|
|
|
|
SBA Guidelines |
Conventional Loan
|
Owner liquid assets requirement The more the better
|
Business Size standard N/A
|
Building Occupancy N/A
|
Processing Time 30-45 days
|
Use of Funds Purchase and Refinance
|
|
SBA 7a Loan
|
Owner liquid assets requirement Can not exceed twice the loan amount
|
Business Size standard Retail = $6 - $25 Million Service = $6 - 25 Million Wholesale = 100 employees
Manufacturing = 500 - 1000 Employees
|
Building Occupancy 51% of purchased property 60% of constructed property
|
Processing Time Under 30 days
|
Use of Funds Purchase and Refinance
|
|
|
|
|
[Back To Top] |