Posted 07-31-2008 12:44 pm by
What kind of loan can you get to buy a business? How much down do you need?
Banks today are much tighter on their funds than before, but it is still possible to obtain loans to buy a business. To understand what kind of loan you can get, it is helpful to see things from the bank’s perspective.
To a bank, financing a business purchase is very different from financing a piece of real estate. If the borrower defaults on the loan, the bank can sell the house at a foreclosure auction and get the principal back. However, the bank can hardly find anything as collateral in the event of a business loan default. There may be a few computers and office desks to sell, but a large part of the value of a business is its goodwill and intellectual property, which are impossible to sell at an auction.
That is why most business loans are SBA loans, where the government backs up the bank in the event of a business loan default. Many banks will only finance a business if the loan is an SBA loan, which typically has a 7-year term and requires 20% down. In today's lending landscape, buyers may need as much as 35% down. In cases where the business owner also owns the building and is selling both the business and property together, it may be more advantageous to finance both the business and property under one conventional loan. A typical conventional loan on a piece of commercial real estate has a 25-year term, which means lower monthly payments compared to a 7-year term.
The unfortunate fact is that many bankers take a long time to approve the loan, and denies the buyer at the last minute. This drags out the closing process, and can many times kill the deal. This is why Advantage Commercial Brokers has built relationships with the right bank officers at the right banks over the years, and recommends our clients to use our contacts when possible. This speeds up the time in which the loan is approved, and benefits all the parties involved.
---Written by Oliver Wu
Oliver Wu | Advantage Commercial Brokers
The Commercial Broker for
Small Business Owners in Puget Sound
Direct: (425) 785-6608
Office: (425) 651-4242 ext. 103
Fax: (425) 882-2547
E-mail: oliver@acbrokersinc.com
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