Many of my clients have recently asked me if commercial lending is frozen. They've heard this from friends and even lenders. This is simply not true in a general sense. People with relatively low credit scores (less than 700) may have difficulty qualifying for affordable financing and can expect to pay more for loans (higher interest rate, larger down payment, etc.) but loans are still available.
A popular loan program (SBA 7A) allowing for just 10% down with interest rates of 6-8%, but requiring 51% or more owner occupying of the space, is more challenging to qualify for, requiring good credit scores and documented evidence of debt service capability (e.g. income to new debt ratio of 1.3 or greater). This helps the underwriter have confidence that your business's net income will pay the loan payments and then some. If a buyer doesn't qualify for an SBA loan, then a conventional loan program is the next alternative to explore. These typically require 25-30% down payment and have higher interest rates of 7-9%.
If a conventional loan is not possible due to finances or credit score, then owner carryback should be explored next. These private loans can be structured however the Seller and Buyer agree. Low down payments are possible as are low interest rates. Typically though the loan will be for a rather short period of time like 5 years, when a balloon payment for the principal balance is due. During that period, it is important for the new owner to save $, clean up credit issues, and seek alternative financing sources. In some cases, the previous owner lienholder may renew or extend the loan if terms (like interest rate) are still favorable in the marketplace.
If your business operates in a sole proprietorship structure, then your business's net income will flow into your personal finances and may become muddied. Lenders typically prefer an LLC structure to keep the business finances separate from your personal. Seek legal or tax council for advice on which is best for you. Also it's good to speak to a lender prior to seeking financing so that you can transition to the ideal structure and have time to generate financial records that are so vital to obtaining loans.
So it's just not true to generalize lending as "frozen". If you are considering purchasing real estate in or around Tucson AZ, contact me and I'll help you determine a reasonable price to offer, and get you plugged in to some excellent commercial lenders to get you pre-qualified for financing. Then we can develop an accurate offer to bid for the property. It continues to be a sound wealth-building strategy to own real estate, operate your business in part of it, and find good tenants to lease the un-used portion to help you pay your note.
Bert Ratia
Long Realty Commercial
BertR.LongRealty.com
(520) 301-0155
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