100% Commercial Loans
You read that headline correctly. 100% LTV commercial real estate financing is possible for successful small businesses.
Commercial real estate loans with no down payment are available for purchase, refinance or construction of a building for your business with nothing down and you can possibly finance all closing costs and even some other business debt and working capital using an SBA loan, but like all commercial lending programs there are caveats…
100% LTV commercial real estate financing is purely an SBA offering from a small percentage of preferred lenders. These are real estate loans for “owner occupied” commercial properties which means that your business must occupy at least 51% of the property. These loans are NOT for investment properties.
Major conditions for eligibility:
- Established businesses only
- Business must have solid, consistent cash flow showing enough income to qualify
- Small business typically has to meet a DSCR (debt service coverage ratio) of 1.25x, but there are exceptions.
- All business owners must have good credit and good credit scores. Poor past credit must be old, explainable and isolated. Many borrowers who had credit issues during and after the recession have qualified for 100% financing.
- Typically you must already have a history of ownership of the business seeking financing as new business acquisitions require 10% down by SBA rule,* however, in some cases 100% financing is possible for an existing business buying another business (and building) of the same type.
Ideal candidates would be businesses with current lease payments close to what their new proposed mortgage payment would be, but many borrowers can certainly qualify for larger loans with significantly more expensive payments as long as their business is profitable enough and the debt service coverage ratio is where it needs to be.
Tenants Can Help Pay the Loan
Keep in mind that SBA requires a business “owner occupy” at least 51% of a building* and that the cash flow of the business be strong enough to qualify for the loan, but the other 49% of the building can be rented out. So…it is possible that you could purchase a building that currently has one or more tenants or you could take on tenants and significantly reduce the amount of your monthly expenses.
* Technically, the SBA allows a borrower to put down just 5% on a business acquisition IF the seller of the business is willing to hold a second mortgage on “full standby” equal to 5% of the sales price.
100% LTV Commercial Real Estate Financing
100 percent commercial loans are not a new thing for SBA lenders. For many years, lenders have recognized that the down payment has been one of the biggest impediments to buying small business real estate, and many SBA and some conventional lenders have made no down payment loans available to certain types of businesses (typically dentists, doctors and veterinarians).
This post is about a more recent development where some lenders are allowing 100% financing for ESTABLISHED SBA-eligible businesses that are otherwise solid but do not have the larger down payment that many lenders require.
Generic Buildings Preferred
It is helpful if the building to be financed is a multi-use or “general purpose” building that almost any type of business could occupy, but we have seen transactions where non-traditional buildings have been approved, for instance, a dog daycare business with a building and a little bit of acreage.
Business Expansion with No Down Payment
Single purpose properties like assisted living, self storage and other “special use” properties may qualify for “no down payment” financing if your business has at least 10% equity on it’s balance sheet that you can leverage to purchase another property or business. For this to work, the existing business must purchase the new business/building using the same corporate structure with the same borrowers/guarantors.
This technique can also be used for a business expansion with no commercial property. In this case, a lender may require a business valuation to substantiate that there is enough equity in your business to leverage your balance sheet to buy another business and the acquired business must become a part of the existing business. Non-real estate deals are typically limited to a 10 year term and amortization.
Borrowing the Down Payment
Additionally, if you are looking for high leverage then please get in touch as we have seen numerous transactions where borrowers with other sources of income have borrowed the minimum down payment. In fact, we have helped numerous self storage clients do this as many borrowers looking to own storage properties have another source of income, a spouse with income or another job or business.
100% Financing “Plus”
This program allows for well over 100 percent financing because if your business is strong enough you can also roll in renovation costs, closing costs, other business debt and working capital.
Please contact me at jking (at) green commercial capital (dot) com if you have any questions or if you would like to see if you qualify.
You can also find out more about the program on our website: here.
*60% in the case of ground up construction.