Buying Commercial Property that houses my business

11 Replies

I own a successful small business that's located in a small retail strip. We have just over 50% of the square footage, and there are three other business located there. I would like to buy the property but I believe the value is around $1.35M. I don't have nearly the cash I would need to go the conventional 30% down route. I need some advice on how to creatively finance this deal. I'd like to keep my business where it is long-term and would love to own the property.

Medium picco logoVincent Priore, Picco Partners | [email protected] | http://www.piccopartners.com

Hello Vincent....I am far from an expert on the SBA 504 loan but I think your loan might be a good fit.   I would reach out to Chris Hurn with Fountainhead Commercial Capital. He has been in the 504 space along time.

I understand that you can get into the property with 10% down.

"SBA's regulations on leasing require that the small business occupy at least 51% of the rentable property if the 504 project is for an existing building and at least 60% of the rentable property (with the intent to move into at least an additional 20%) if the 504 project is new construction.

Eligible Borrowers:
  • For-profit, non-publicly traded businesses
  • Tangible business net worth (including affiliates) not to exceed $15 million
  • Average net income of the business not to exceed $5 million over the previous two years
  • Ownership must generally be comprised of 51% U.S. citizens or Legal Permanent Residents (some exceptions apply)Examples of Property Types Fountainhead Finances:
  • Medical offices or medical facilities (such as labs and clinics)
  • Office buildings (including office condos)
  • Warehouses (and other industrial properties)
  • Day care facilities (for children or adults)
  • Free-standing restaurants
  • Limited-service, flagged hotels (some unflagged destination hotels will be considered)
  • Auto repair shops
  • Assisted-living facilities
  • Call to ask about many other property types that are eligible
Ineligible Borrowers:
  • Non-profits (except sheltered workshops)
  • Passive holders of real estate and/or personal property
  • Lending institutions (mortgage brokers and correspondent lenders are eligible)
  • Life insurance companies (franchised agents are eligible)
  • Businesses located in a foreign country
  • Businesses selling products or services through a pyramid plan
  • Gambling concerns
  • Businesses which restrict patronage
  • Government owned entities (excluding Native American tribes)
  • Consumer and marketing cooperatives (producer cooperatives are eligible)
  • Businesses engaged in loan packaging
  • Businesses that have previously defaulted on a Federal loan
  • Businesses engaged in political or lobbying activities
Ineligible Use of Funds:
  • Working capital
  • Inventory
  • Rolling stock
  • Business “good will” or “blue sky”

I agree with Joel its good to check your existing relationships.   However, but open to the possibility your bank prefers 7a to 504 from their cost perspective and might not give you a warm fuzzy.

Hi,

Currently own my property ( in a strip mall) where my small business is occupying one of the retail suites (on our 4th year now), I'm on SBA 504 loan (25 years) and since I already passed the 3rd year and realized that I don't need the space anymore (nature of business changed - we have more online sales than walk-ins) can I lease my suite out?

@Christine Luong

 I would guess the loan covenants would spell out your on going obligations via owner occupancy and subleasing.  The intent of the program is owner occupied real estate so my guess is the loan docs might be strict about that option.   

I would recommend speaking with a good real estate lawyer in your area to evaluate your options.   The other option is to evaluate refinance with a good mortgage broker to an investor loan but that would require significantly more equity.

Thank you so much Douglas. Really appreciate your input.

Originally posted by @Vincent Priore :
I own a successful small business that's located in a small retail strip. We have just over 50% of the square footage, and there are three other business located there.

I would like to buy the property but I believe the value is around $1.35M. I don't have nearly the cash I would need to go the conventional 30% down route.

I need some advice on how to creatively finance this deal. I'd like to keep my business where it is long-term and would love to own the property.

 Were you able to find financing for this project? There may be a way to purchase your space with less than 10% down. You will need to occupy at least 51% with your business. Let me know if you are still putting together a financing package since I may be able to help.

Thanks, Dan

Originally posted by @Christine Luong :

Hi,

Currently own my property ( in a strip mall) where my small business is occupying one of the retail suites (on our 4th year now), I'm on SBA 504 loan (25 years) and since I already passed the 3rd year and realized that I don't need the space anymore (nature of business changed - we have more online sales than walk-ins) can I lease my suite out?

 Christine,

I have not reviewed the SBA 504 Authorization in detail recently but I am sure there is some sort of equivalent to a "material adverse change" in the either the SBA's document or your conventional lender's note. I have done a number of SBA 504 deals where the owner has vacated the property and kept as an investment but am not aware of a situation where either the SBA or the conventional lender has tried to call the note due under this type of loan covenant. Most correct answer is to refinance the note to conventional terms but otherwise as long as you keep paying on the loans I doubt much will happen.

Hi @Vincent Priore - I'm new to BP and just curious how this worked out for you. Did you purchase a property to house your business? We're thinking of doing the same thing.