How to get a loan on a commercial property???

11 Replies

Hello BP members! 

I first like to say what a community! Very good advice on the forums but now I would like your help! 

My parents are legal immigrants that have established a good dry cleaning business in the metro Detroit area. I realized that it would make sense for their business to purchase a commercial building so that they have some equity in the building while they operate their business, instead of paying ridiculous rent. Commercial buildings seems like they're not doing so well because you know Amazon... But that means its great for business's that tend services/necessities. So ill just get straight to the question: 

What are some creative financing options for my parents on a $300k+ commercial property? 

I have talked to a few mortgage officers and they seem to give me a hard time on even getting a loan for an investment residential property for $100k since we purchased a home 3 years ago. The business is doing a gross profit of at least $240k but on my parents individual taxes is showing only 70k because of our CPA. I have talked to a few SBA lenders but they haven't gotten back to me so if theres anybody that knows how we can tackle this situation, I would appreciate it! 

@Peter Yun you want to call some local banks & credit unions and talk to their commercial lending or commercial banking department.  If you are talking to a mortgage lender, they are most likely looking at residential mortgages.  Having a great relationship with a local bank or credit union is an awesome asset to have for any small business.

If they have gross profit of $240k, put 50% down and most of those same lenders won't care about personal guarantees...

@Peter Yun You probably already know this, but be sure you have the environmental bit under control.  The lenders will very likely require it in order to finance a deal.

Percoethelyne is really nasty stuff and not easy to clean up.  It's heavier than water, so will sink to and then through the water table, contaminating it in the process. 

The state environmental consultant tells me that if you let perc sit long enough, it sheds a chlorine atom and becomes an even worse pollutant than when it started.

I have a dry-cleaning site listed for sale here in MA.  The seller knew about the contamination, but buried his head in the sand when cleanup costs were $250,000.  Now, a potentially interested buyer got a new cost estimate - at $1.5M.

Now that the cleanup cost exceeds the value of the cleaned property, the only hope my client has is to get a "Brownfield" designation and get state or federal help with the cleanup costs.

@Charlie MacPherson YES! Beware of using Perc... We got rid of using Perc because of that reason and started using a solvent called K4 solvent that is supposedly eco-friendly and need an entirely new machine for it. 

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If you go the SBA route, you can get as high as 90% LTV and a fixed rate over 25 years.

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As mentioned look at a business loan. Generally as long as the business occupies 50% of the total building space you can get an SBA loan on it. Go to a lender that specializes in SBA loans. The dabblers tend to screw them up and take twice as long to do a loan.

You could buy a retail building and put dry cleaners in 50% or more and lease out the rest.

Also, make sure the lenders you or your broker are considering are preferred lenders. That allows them to underwrite the SBA loan in-house, as opposed to sending it to the SBA for underwriting - much easier and faster, which is why I only recommend preferred lenders for SBA.

This would seem to be a very straight forward rent-replacement deal. The environmental sensitivity of dry cleaners can be an issue but it sounds like you have it under control.

The accounting issues you indicate are typical but a seasoned lender can easily understand and navigate the lending process.

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