Commercial Real Estate

Commercial Real Estate Purchase

Are you looking for SBA financing to purchase commercial real estate?

Here are a few items to go over that most lenders will look at.

Cashflow: The bank will want to see the last 3 years business tax returns and your most recent profit and loss statement along with your personal financial statement in order for them to give them an idea on whether or not your business generates enough cash flow. Usually banks look for the cashflow/ debt coverage to be 1.25 or higher. If you need help understanding cash flow or debt service call the Guru for more info!

Credit: Banks usually want to see personal credit at 660 or above. Anything less than that be prepared to explain why it is low and explain any historical delinquencies on your credit report.

Occupancy: When purchasing commercial real estate through the SBA loan program you must occupy at least 51% or more of the building that you are buying. You can rent out portions of the building to tenants but can’t be more than 49% of the property!

What is the common down payment?

Down payment: You can purchase commercial real estate through the SBA loan program with 0% down! The usual most common down payment is 10-20% down depending on the cashflow of your business and a few other caveats. The SBA program is a cashflow based program and doesn’t necessarily have LTV (loan to value) hard guidelines.

A seller carry note can be used for the purchase of commercial real estate, this is a great negotiating tool that you can use when purchasing property. Some sellers prefer a seller carry note for tax reasons etc. it can be a win win for you both!

A loan used to purchase commercial real estate is allowed a 25 year term as long as the majority of the loan is used to purchase real estate. There are no balloon payments in SBA loans but more than likely there will be a 3 year prepayment penalty (usually 5% the 1st year, 3% the 2nd year and 1% the 3rd year). Prepayment penalties kick in on SBA loans when your loan maturity is 15 years or longer.

The borrower can create another entity that’s only function is to hold the real estate (real estate holding company) or frequently called an Eligible Passive Company in SBA terms. You may see the acronym EPC/OC meaning that there is an Eligible Passive Company and an Operating Company both co borrowers on the loan. Talk with your CPA to confirm if this is a right fit for you and your business.

Closing an SBA loan for the purchase of commercial real estate has the potential to close in 30-45 days depending on how quick you work with the lender to give them necessary info they are requesting. Lenders that we work with can usually give you terms of your potential loan within 24 hours!