Owner willing to finance 20% down?

Question

I have found a commercial property where the owner is willing to finance 20%. My question, as I am unfamiliar with commercial properties, is whether a bank will accept this, or will they require the money down to be directly from me?

Just to be clear, I'm trying to get the bank to finance 80% and the owner the other 20% (or 75% and 25%).

Jon Holdman · Answer

Nope, the bank won't allow this.  The term CLTV applies in this case - combined loan to value.  The value is the purchase price (or appraisal, if that's lower).  A bank might be willing to do a 75% or 80% LTV. But the will impose a limit on the CLTV.  Not sure what it will be, but it won't be 100%.  You will have to have some of your own cash in the deal.

Bill Gulley · Answer

Jon and Bryan are correct, the bank wants skin in the game.....but let's never say never;

It also depends on you financial statement, past business and business relationship with your lender and the property, what's the expected income and value. In commercial, these are general rules, but there are instances where a bank can accept additional collateral and make up for that leveraged transaction. I have obtained 100%, even more, in some deals, but that is absolutely not the rule.

Bryan Hancock · Answer

Spot-on Jonâ€¦Some banks were doing up to 90% CLTV around 2008, but my guess is that these financing terms are long gone in the current credit environment.  You need to speak with a broker to know for sure.

Keep in mind that even if you can find a small regional bank to do these terms you will have tradeoffs (more points, higher rates, lockout periods, shorter amortizations, prepays, etc.) associated with the loan product.  You have to decide whether or not all of these other niceties that the bank adds justify coking up the loan another 10%ish toward the CLTV.  Points alone could eat through a lot of the upside unless the loan is a big one.

Owner willing to finance 20% down?

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