Loan strategies for business opportunities to buy a business
When obtaining a loan for business opportunities, borrowers will find that many lenders simply do not provide business loans that do not include real estate as part of the business purchase. There are several other important business financing issues that you should analyze before buying a business without commercial ownership.
Interest in buying investments for business opportunities has improved due to serious problems with residential properties. However, because there are so many critical differences between residential real estate financing and business financing, it is important that potential business owners educate themselves before proceeding.
To purchase a business, a commercial borrower will likely need business financing. If the business involves commercial real estate, the borrower will need a commercial mortgage. If the business purchase does not include real estate, the business borrower must use a business opportunity loan.
Unfortunately, the availability of financing for business opportunities is more limited than financing for commercial real estate. There are also some potential limitations and issues unique to a business opportunity loan, and commercial borrowers should make every effort to avoid these business financing difficulties.
Our goal here is to focus on a few financing issues to anticipate when commercial real estate is not part of a business purchase. Our proposed approach to funding business opportunities is outlined below.
Begin your investment financing plans for business opportunities by formulating a realistic estimate of available cash for a down payment and your desired maximum business purchase price. A down payment of around 25% is recommended for most of the business financing situations described here. Typically, seller financing is eligible for a portion of the down payment, but a potential buyer should generally plan to invest at least 10% of the purchase price from their own funds, even if the seller provides 15% or more.
Since small business administration loans are essential for this type of financing, you need to research whether you will actually be able to qualify for these specialized business loans. This step is both important and somewhat complicated, and the involvement of an SBA loan expert is highly recommended. Among the questions to explore are whether collateral is available for SBA financing and how important refinancing is to your overall business opportunity financing process.
It is important to consider the rental terms that are possible. As noted earlier, financing and investing in business opportunities does not involve purchasing commercial real estate, so long-term lease arrangements must be made. The length of the lease is important as normal business finance terms will limit the length of business finance to the period covered by the lease (although you should allow for a ten-year maximum for investment business loans). In other words, on a seven-year lease, the commercial loan will likely be for seven years, and even on a fifteen-year lease, the commercial financing will likely expire after ten years.
Research whether or not real estate incorporation is a viable option to purchase a business. By incorporating a commercial property, you can get a longer business loan and the interest rate will be lower. Since not having a commercial mortgage can actually be an advantage, the possible improved terms through the inclusion of real estate should not be considered in isolation.
Discuss business financing options with a business opportunity loan expert before making any offer to purchase a business investment. These discussions should include issues such as potential purchase price, down payment options, seller financing, buyer credit scores, tax filing requirements and collateral options.
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