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    5 Replies Latest reply on Mar 5, 2009 8:22 AM by bmt2008

    Fairly new business getting real estate loan.

    dalb7lly Newbie
      We just went into business last April doing performance upgrades to peoples vehicles, mostly diesel trucks. Business has been going well and getting more and more busy in the past 11 months. Most of our growth can be contributed to word of mouth by our customers recommending us to everyone they see with diesel trucks. We got started with our own money from scratch, no start-up loans or lines of credit. We have been working out of our personal garages and shops, garages and barns of friends and family. We have been saving nearly all of the money the business brings in except for using some for advertising and buying minimum initial orders from companies to become dealers for aftermarket parts. We originally planned on building a pole barn shop as we got the money for it - basically start with the poles, then pour the concrete, then put a roof over it, put walls on, then add electricity, plumbing, ect. Mostly we wanting to do this to keep from having much overhead or debt in the business in these hard times. Our problem was that the land we already have is far off the beaten path and wouldn't bring in any walk in customers and would even be hard for customers to find with directions (even GPS can't find it). We started looking for more suitable land with and without pre-existing structures and have mostly run into $75K+ for raw commercial land and $200K+ for small pieces of land with small to medium sized buildings up to 2400 sq ft. already on them. Then the other day I ran into a 3.8 acre lot with a 10 year old 5000 sq ft building in very good shape already on it - it is for sale by the owner for $80K and is on a state route that is the major through way between two cities, my partner and I went and looked at it with the owner and really like the location and building.

      I noticed on the Bank of America website that they require a business be established for 2 or more years to get a real estate loan. How do they expect a business to get established without a place to do business from? Our payment on this property would be half that of any lease we have found for much smaller buildings, so leasing for the next year seems stupid. Where else can we get financed for this property which I'm sure will appraise for well over the asking price. Also could there be any city, county, state, or federal programs or grants that might be able to help us. Would there be anything negative about going with owner financing as long as the terms are reasonable and we have an attorney review the purchase contract before signing?

      Thanks in advance,
        • Re: Fairly new business getting real estate loan.
          dublincpa Scout
          Owner financing is fine, but make sure all the things a bank would require are done:
          • Full formal appraisal by a licensed independent appraiser, not a real esate agent or broker.
          • Full title search.
          • Appropriate environmental testing.
          • Inspection of the buildings by a structural engineer. (Not usually required by a bank)

          I would be really looking closely at this property. It almost seems to good to be true. If it really is - great. Just don't cheap out on due diligence and unknowingly buy someone else's problems.

          In this environment, bank financing is tough for anyone, but try. The new TALF program from the Feds might loosen some wallets at the banks. Maybe try a local bank. If you have scraped together enough to pay cash for a pole building, maybe that could be part of a down payment. A local bank might be ok with a smaller down payment if the seller is willing to carry back some junior debt.

          If everything is on the up and up, you can also see if the owner will do a one or two year lease option with some of the payment going towards a down payment. You will have accumulated some down payment while the business is maturing in the bank's eyes.


          Good luck.
          1 of 1 people found this helpful
            • Re: Fairly new business getting real estate loan.
              dalb7lly Newbie
              Thanks for all the good info and suggestions. The owner only wants to do owner financing as a last resort if we can't get financed through a bank. I could talk to him about the leasing towards a downpayment option also.

              I'll be heading to our bank today to start talking with them about what they would need from us an all. This weekend my partner and I are going to get all of our finicial stuff together and have my fiance (a CPA in NY and NC) go through it all with us and help us get organized and draft a business plan. Never really got around to making a business plan because people were asking for our services before we were technically a business - we registered as a business so that we could do things legitimately. There was never a question of if it was a good idea since we didn't need much of any initial investment and the demand was already coming in.
                • Re: Fairly new business getting real estate loan.
                  bmt2008 Adventurer
                  If your bank say no, there may be other options. You and your partner might want to look at a unsecured business or personal loan as long as your credit histroies are strong (which a bank would also require) and you can show an ability to repay (which a bank wouls also require). But, with an unsecured loan, you would not have to sign a general UCC on all your assets and you would not have to jump through all the hoops the bank will make you do including no downpayment. (note: you still should do some diligence as stated above).

                  Additionally, if you do not get the full amount - you might be able to get enough as a down payment to make the owner happy to finance the rest.

                  Further, if you still want to do a real estate loan - there are other - non-bank companies - that provide commecial real estate loans for owner occupided property. Just keep in mind that they too will require you to put down 20% or more and they will lend the rest.

                  Just some thoughts
              • Re: Fairly new business getting real estate loan.
                dublincpa Scout

                I forgot to mention getting a survey.
                1 of 1 people found this helpful
                • Re: Fairly new business getting real estate loan.
                  LUCKIEST Guide
                  Fairly new business, Welcome Dustin

                  Where are you?? Have you developed a Business and Marketing Plan??

                  If you are looking to raise money, you need a Business Plan.