Connect With Local Lenders
SBA funds are disbursed through banks and other lenders rather than the SBA itself. Youll need to find a lender that offers loans in your area. Look for SBA Preferred Lenders. These lenders have extensive experience working with SBA loans and can make a final decision on your loan application in the SBAs place which can save significant time.
You can use the SBAs lender match tool to find lenders likely to work with you in your area. You will need to answer a few questions about your business. Then, you will hear back from the SBA with a list of interested lenders within a few days.
You can talk to each lender to find the best loan package for your startup. Compare the SBA loan rates, terms and fees to decide which lender you want to work with.
Keep Business And Personal Lives Separate
Many LLC owners may like the idea that buying property with an LLC allows them to separate their property ownership from their personal lives. However, owners who use the LLC for personal expenses make it easier to pierce the corporate veil and disregard the corporation or LLCs separate existence should the LLC face a lawsuit. Piercing the corporate veil can become an issue for LLCs of all sizes.
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Gather The Required Documents
When preparing to apply for a business acquisition loan, its essential to put together an application packet of all of the documents lenders might ask for. This will help streamline the application process and make it easy to locate your documents in case you submit applications with multiple lenders.
Lenders will typically require these documents to evaluate your personal finances and past business history:
- Personal bank statements
- Two years of past tax returns
- Financial statements for any other businesses youve run
- List of personal debts, including amounts owed, monthly payment and payoff date
Since youre buying an existing business, youll also need to gather documents from the current business owner. These documents are sensitive because they contain financial details, so you may need to sign a non-disclosure agreement . At a minimum, make sure you collect these documents from the owner:
- Cash flow statement
- Two years of past tax return
- Business bank account statement
It can seem like a hassle to ask the current owner for these details, but remember: this is a financial transaction, and to make a good business decision, you should know these details, too. You want to know upfront if its a profitable business.
Once you have this information in hand, youll need it to create a few new documents of your own to go along with your application packet:
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Business Bank Statement Loan
If you use your business bank account to handle all transactions and you dont pay yourself into a personal account then youll likely need to do a business bank statement loan.
Depending on your history, you can look at getting approved with 12 or 24 months statements.
The lender will review your bank statements in detail, looking for large/unusual deposits and NSFs.
Any large/unusual deposits will need to be explained.
If there is a pattern of NSFs it could be an issue.
For a business bank statement loan youll need:
- At least 15% down payment for home purchase
- Letter from CPA or tax preparer stating what your expense factor is. An expense factor tells how much percentage of your gross income goes toward expenses
- Proof you have been in business for at least 2 years
- Proof of 100% ownership in the business
- As low as 600 credit score
Per the CPA or tax preparers letter, the expense factor will be applied to your gross deposits to come up with your usable income.
Example: Gross deposits over 12 months are $100,000, minus 30% expense factor = $70,000 usable annual income.
A business bank statement loan is a great mortgage for small business owner if you have strong deposits and keep clean records.
These are allowed on home purchase, refinance, and cash out refinance.
Keep An Eye On Mistakes
Pull your credit report from all three of the major credit bureaus and study it meticulously. Are there any errors? An estimated 25% of credit reports contain mistakes, so make sure your score isnt suffering due to someone elses error. Those mistakes such as an auto loan payment that is mistakenly listed as late when you paid it on time could cause your credit score to fall by 100 points or more.
If you do find mistakes on your credit reports, report them to the offending credit bureau.
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What Credit Score Is Needed For An Sba Loan
Typically, qualifying for an SBA loan requires a minimum credit score of 660. For SBA 504 loans, the minimum is usually 680.
Another thing to be aware of with SBA loans is that the Small Business Administration is not intended to be a first-choice lender but rather a lender of last resort. Before applying for a loan from the SBA, you should seek financing from other lenders.
Key takeaway: If you are unable to qualify for a bank term loan, you may be able to apply for an SBA loan. Even though it may have a lower down-payment requirement, the SBA is a last-resort lender.
What Are Some Alternatives To Business Loans
Sometimes you need to pour more capital into your business just as youre applying for a mortgage. But there are alternatives to traditional business loans, including:
- Invoice factoring: A companys lack of cash is often due to a lack of cash flow. Unpaid invoices can be especially harmful to small businesses. Invoice factoring allows businesses to borrow against outstanding invoices to improve their cash flow and maintain working capital.
- Merchant cash advances: Some lenders provide cash advances against future sales. The business receives the cash it needs to cover funding gaps and makes daily or weekly payments to repay the loan. Merchant cash advances sometimes come with high interest rates or fees.
MoneyHackOther Personal Loans
In some cases, you may be able to take out a personal loan against your 401, life insurance or other retirement income. These loans wont impact your credit history.
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What About Credit Pulls
There are two types of credit pulls: hard pulls and soft pulls. When a creditor checks your credit report to review your credit history and determine your creditworthiness, thats a hard pull. Hard pulls stay on credit reports for 2 years.
When youre applying for a business loan and a home loan in your name, those hard credit pulls stack up and could drop your credit score. It is also a signal to lenders that you are trying to take on more debt. As a result, a mortgage lender may offer less favorable loan terms, which may result in making a larger down payment or paying a higher interest rate.
Pro tip: There is a small window when you can shop around for a mortgage before all of the hard pulls are recorded. If multiple inquiries for the same loan type fall within that 2-week window, they will count as one inquiry, but if you are shopping around for two different types of loans , both inquiries will impact your score.
How Can I Get My Loan Approved
Our mortgage brokers are experts in getting mixed use property loans approved. We can assess your situation and determine the best way to represent it to the lenders.
We can assess each mixed property on its own merits. If the zoning isnt going to change, or the propertys purpose isnt going to change, then well have to match it up to the right lender.
As mortgage brokers, we can determine which lender will be best suited for your security property.
Call us today on 1300 889 743 or complete our free assessment form to find out how we can help you.
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Meet The Bank Before Bidding
Its best to meet your banker before bidding on the property you have in mind, especially if its your first foray into commercial real estate.
The bank will also advise you on its conditions for granting financing. Those may include obtaining environmental and building condition assessments, an appraisal, and a title search. It helps to use approved experts for this kind of due diligence, and each bank has its own list of such experts. If you use someone else, the bank may require a second opinion and the transaction could be delayed.
How Do I Qualify For A Commercial Mortgage
Most lenders will require your business to occupy 51% of the property to qualify for a commercial mortgage. Because a commercial mortgage is an asset-based loan, the loan amount and rate will largely be based on your credit and the value of the property youre using as collateral.
Pick the right location
The value of the property affects the mortgage decision. For that reason, a prime retail space in Los Angeles may be easier to finance than a rural storage unit a few hours outside Fargo, North Dakota. Youll want to take this into consideration when youre deciding where to buy or build.
Communicate renovation plans to lenders
If youre planning on making upgrades to a property, your lender will want to know about them. For full-scale property renovations, your lender will also want to assess the after-repair value of the property. Be sure you have a plan for how youll use the mortgage before you applythat way, youll have answers to all the lenders questions.
Prepare necessary documents
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What Is A Business Mortgage Loan
A business mortgage is similar to a home mortgage. Sometimes referred to as a commercial mortgage or a business mortgage loan, a business mortgage is a mortgage or loan on commercial real estate.
Commercial real estate is any property that generates income. You dont have to be in the commercial real estate business to generate income. If you run a business with the intent to generate income, regardless of your business type, the property where you operate the business is likely commercial real estate.
Sure, if you run your business out of your house, some unique rules apply. But generally speaking, your place of business counts as commercial real estate.
Commercial Real Estate Loan Payment
If it sounds like lenders for commercial loans are taking on a decent amount of risk its because they are. What if you cant find a tenant for your commercial real estate space? What if you have to lower rents? Or what if your maintenance expenses are higher than you predicted? There are several factors that can lead a business to default on a commercial mortgage.
This risk factor, along with the sums of money being so large in commercial real estate, lenders generally charge higher interest rates for commercial real estate loans than they charge for residential mortgages.
Moreover, lenders might not be willing to wait the 30-year standard that residential mortgages adhere to. Its common for commercial real estate loans to be balloon mortgages, which start with a period of regular interest payments and end with a lump-sum payoff.
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What Do The Banks Assess
There are a number of factors that banks and lenders look at to determine your eligibility for a commercial loan:
- The yield and cap rate.
- The bank valuers recommendations.
Do you qualify for a mortgage to buy a mixed use property?
Please call us on 1300 889 743 or complete our free assessment form to find out how we can help you.
What Does It Take To Qualify For A Commercial Real Estate Loan
Every lender has its own criteria for commercial real estate loans, but there are some important questions to consider before you apply. For example, how much is a down payment on commercial property? And what are the business financial requirements? Do you have the credit scores to support a low interest rate?
As for business financials, what youll need depends on the lender. For example, SBA 504 loans actually have a cap: your business tangible net worth cannot exceed $15 million, and average net income cannot exceed $5 million after taxes for the prior two years.
With commercial lenders, you may be required to meet certain minimums, such as having at least two years in business under the current ownership and $250,000 in annual revenue.
As you shop around and compare lenders, take note of their requirements to determine whether you qualify. Also, consider both traditional commercial lenders like banks and online lenders in your search. While online lenders may charge higher interest rates, they can also have less stringent requirements for credit approval.
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Can You Afford It
Your business ability to afford a commercial real estate loan must be top of mind when considering a business mortgage.
The three expense factors include the interest rate, term, and balloon payment.
Dont forget about your business growth when considering these expenses. You are considering a business mortgage because you expect to grow. What will your business look like in two years, five years, twenty years?
Consider your future business expectations when considering whats affordable to your business. That balloon payment may be impossible in two years, but a nonissue in five years.
How Does The Sba 7 Loan Differ From The Sba 504 Loan
Another option for real estate and land loans is the SBA 504 loan program. Compared to the SBA 7 loan, the SBA 504 loan:
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is a larger loan, with a minimum of $125,000 and a maximum of $20 million
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has a fixed interest rate
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has a 20-year maturity rate for real estate and land
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requires a 10% borrower down payment
You must also get an SBA 504 loan from a Certified Development Company, or CDC, rather than from a bank or traditional lending institution.
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How Much Do You Have To Put Down On A Commercial Real Estate Loan
You can generally expect to put down a minimum of 20% on most commercial real estate loans . Depending on the lender, the situation, and your business financials, though, you may be required to put down much more.
Also, keep in mind that a higher down payment means a lower monthly payment going and lower interest costs going forward.
Compare Alternative Business Loan Structures
Like your mortgage lender, your business lender will do a hard pull on your credit when you apply for a business loan from a traditional bank. Again, this hard pull will only drop your score slightly, usually by 5 points or less, and for only a short time.
If you really dont want an extra hard pull on your credit reports, though, there are several alternative types of business lending that typically dont require a credit pull. These are two of the most popular:
- Invoice financing: With this option, lenders give you a cash advance of around 85% of the value of your outstanding invoices. They pay the 15% to you later, minus fees, after the client has paid up. Many invoice financing companies do not require a credit pull.
- Merchant cash advances: A lender will give you a fast cash advance in exchange for a portion of your businesss daily credit card proceeds. Some merchant cash advance companies do not require a credit pull.
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Can You Get A Commercial Mortgage Types For Small Businesses
Business mortgages are riskier than home mortgages for the lenders. In fact, you might have a harder time securing a commercial real estate loan than you would a home mortgage. Most businesses start with private banks in the business mortgage search, and you might consider that same route.
In the event that private banks are unwilling to lend you money for your commercial property, dont give up hope.
The Small Business Administration runs multiple programs to help small business owners acquire commercial mortgages.
The SBA 7 loan program provides financial assistance to small businesses. SBA 7 loans are capped at $5 million for the standard program, and $350,000 for the small loan program. SBA 7 loans can be used for commercial real estate, or other business purposes and complete qualification requirements can be found at the program site.
The SBA 504 loan program provides financial assistance to small businesses specifically to acquire fixed assets for expansion or modernization. The SBA works with Certified Development Companies around the US to facilitate 504 loans.
CDCs are regulated by the SBA and charged with promoting economic development in their local communities. 504 loans are typically structured with the SBA providing 40% of the project cost, a partner lender providing 50% of the cost, and the borrower providing 10% of the project cost.
Small Business Administration Loans
The Small Business Administration, or SBA, guarantees, at least partially, loans from SBA-approved lenders. The SBA will usually back anywhere up to 85% of the loans value. SBA loans provide many benefits to business owners, like low down payments, solid interest rates and reasonable qualification requirements.
Not all SBA loans will call for a down payment. However, the norm is 10% to 20%, so you may need to muster up some cash. In some cases, you can also take advantage of small business grants.
Perhaps the most common SBA mortgage is the 7 Loan. This can fund any stage of the commercial real estate process, from land purchase to construction to renovation. 7 loans can range as high as $5 million in size. Interest rates are usually either fixed or variable, though you may receive some combination of the two.
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