|
Financing Alternatives to
choose
Before getting too involved in the process of
purchasing office space, you need to determine how you will be paying
for the property. There are numerous loans available to finance the
purchase. Some of the more popular methods are described below:
Types and Descriptions of Loans:
SBA 504 Loan:
This is a small business loan which offers long-term fixed-rate
financing. The purpose of the loan is to enable small healthy businesses
to expand and grow by purchasing land, buildings, machinery and
equipment or for building, upgrading, renovating or restoring their
facilities.
Often small businesses are unable to qualify for conventional loans
because of the required down payment of 30% or more. When a conventional
loan is not possible, a 504 loan may be. The SBA 504 loan gives the
small business owner access to low-cost, fixed-rate and long term
financing which the large businesses have through bond markets. There
are other advantages with a 504 loan such as a lower down payment,
avoiding market fluctuations through below-market, fixed rate financing,
and a longer repayment plan.
Adjustable Commercial Mortgage:
The interest rate with the adjustable commercial mortgage is regulated
occasionally to a precise index such as Prime or T-Bills.
Construction Loan and Take-out:
A commercial construction loan tied in with a pre-arranged takeout loan
in place.
Fixed Rate Commercial Mortgage:
With a fixed rate commercial mortgage the interest rate will remain
constant throughout the term of the commercial mortgage.
Hard Money Loan:
A hard money loan is a commercial loan from a private lender. The loan
is based predominately on the property value.
Bridge Loan:
A short term (usually two years or less), interim or project type
commercial loan.
Joint Venture:
A financial partner who has a financial interest in the growth and
development or ownership of the property.
Sale-Leaseback:
The lender purchases the land and leases it back to the borrower for a
fixed rent and additional considerations. Depending upon the strength of
the borrower, this type of commercial mortgage can produce more dollars
than a typical commercial mortgage.
Second Mortgage:
A commercial loan secured by equity. This is in addition to the first
lien.
Wraparound Mortgage:
The lender assumes the first mortgage and creates a second mortgage.
General Lending Criteria:
A SBA 504 loan requires a 10% down payment from the borrower. However,
banks
will usually not finance more than 75% of the appraised value of the
property.
Properties must confirm adequate debt-repayment capability by utilizing
a debt coverage ratio of 1:20 times or higher on income.
In cases where the property is occupied by a single tenant, the lender
will want to verify the financial strength of the tenant.
The lender will require a rent roll, which should generally be updated
each year.
The lender will probably require an environmental phase-I audit to
determine if there is possible contamination of the site. It will
probably be necessary to obtain the personal guaranties of the principal
owners.
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