If you are looking to buy an existing Business or Commercial Property, you would want to put a reasonable down payment and get a loan for the balance. These loans are complicated and you may end up losing a good opportunity for want of a loan.
Business Loans may or may not include Real Estate. Either way they are financeable. Unlike a residential loan the focus for debt payment shifts to the Business or Commercial Property. If the subject Business or Commercial Property generates enough Income to pay the loan then you will have met the most important criteria for loaning. Keep in mind that the lender is relying on past documented income on Tax returns and will not go of future projected numbers. While you do not have to be wealthy to buy a Business or Commercial property. The lender looks for some basic criteria for Buyer qualification.
BUYER QUALIIFCATIONS
- Is the Buyer credit worthy? You do not have to have a 750 plus score generally a score above 680 is fine. The bigger issue is if you have any derogatory accounts.
- Does the Buyer have enough of experience and or qualifications to run this kind of Business or manage the commercial property. This is extremely important. Poor management is one of the major causes for most businesses going under.
- Does the Borrower have sufficient down payment which typically varies from 20-40%? They will also check the source of the down payment. The down payment cannot be typically borrowed.(exceptions are there) They can be gifted to the Borrower form a close relative.
- Does the borrower have too many debts? If he or she does there must be another source of income to pay the existing personal debts or the Business that is being bought must generate enough money to support not only the new loan but also his/ her existing personal debt.
BUSINESS QULAIFICATIONS
- The most important aspect in a loan is the Income generated from the Business or loan. Is there sufficient Income to pay the new loan?
- Are the Incomes generated fairly consistent over the years? Is there any new competition or other factor that may reasonably impact the profitability of the Business?
- Will the new management be able to be as successful as previous?
- Is there a transition or training period?
PACKAGING A LOAN
It takes substantial time and effort to effectively package a loan where a Lender will decide to lend on it. Most reputed lenders have sop many request that they do not have the time to carefully examine each deal. It is important to take the time and painstakingly package each loan where it would address each of the lenders concerns. This way you get the attention of the Senior Credit manager for each lender and not only maximises your chances of approval but gives you a negotiating advantage to get the best rate from various lenders. It is crucial to engage a loan consultant with a strong verifiable track record.
BUSINESS EVALUATIONS
Often on examining a business financials one may find that the business is overpriced. It is important to bring this to the attention to the Buyer so that he/ she may either renegotiate the price or decide not to proceed with the deal. Appraisals tend to be subjective and a trusted Business consultant is advisable
MATCHING THE BUYER WITH THE BUSINESS
A large percentage of Buyers are first time. Just like any marriage it is important to match the Business or Commercial property well with the Buyer. An experienced business broker can assist with this process. It is important to find someone who comes from a good referral source. A lot of Brokers are just interested in making their commission.
TYPES OF BUSINESSES AND COMEMRCIAL PROPERTY
There are hundreds if not thousands. I will touch upon some of the basic categories:
- ACTIVE BUSINESS
This is where you need day to day management to run it. Service businesses like dry cleaners, Pest Control Services, Plumbing, Contracting etc. Retail Businesses which have a store outlet like Gas Stations, Convenience Stores.
- PASSIVE BUSINESSES
These do not require the same level of day to management. Examples of these are Apartment buildings. Commercial Rental Strip Complex where typically Income is derived from a Landlord tenant relationship. Obviously the headaches are less and the returns on investment are lower than for active businssess.
So, if you are interested in buying properties and looking for
California Business Loans or
Commercial loans in California, just do take care of above points.
