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What You Need To Know About Business Opportunity Loans
Buying a business investment without real estate requires specialized business opportunity financing. Although this kind of business financing is available, there are several potential problems which should be anticipated and avoided by prospective buyers.
There are a number of key business financing difficulties to anticipate and avoid when obtaining a business opportunity loan that covers a business acquisition that does not include commercial property as part of the financing. For example, many commercial lenders will not provide commercial loans that do not include real estate as part of the business purchase.
Interest in buying business opportunity investments has improved because of serious problems with residential real estate. However, because there are so many critical differences between financing residential real estate and business financing, it is important for potential business owners to educate themselves before proceeding.
In order to buy a business, a commercial borrower is likely to need business financing. If the business includes commercial real estate, the borrower will need a commercial mortgage. If the business purchase does not involve real estate, a business borrower must use a business opportunity loan.
Unfortunately the availability of business opportunity financing is more restricted than commercial real estate financing. There are also some potential limitations and problems unique to a business opportunity loan, and commercial borrowers should make every effort to avoid these business financing difficulties.
Our goal here is to focus on several financing issues that you should anticipate when commercial real estate is not part of the business purchase. Our suggested approach to business opportunity financing is provided below.
Begin your business opportunity investment financing plans by formulating a realistic assessment of cash available for a down payment and desired maximum business purchase price. In most business financing scenarios, a total down payment approximating 20% to 25% of the purchase price is advisable. Usually seller financing is permissible for a portion of the down payment, but a potential buyer generally needs to plan on investing at least 10% of the purchase price from their own funds even if the seller is providing 15% or more.
Evaluate whether a Small Business Administration loan is relevant for your particular business financing and investing circumstances. This step is both important and somewhat complicated, and the involvement of an SBA loan expert is strongly advised. Among the issues to explore are whether collateral is available for SBA financing and how important refinancing is to your overall business opportunity financing process.
It is important to consider the lease terms which are possible. As noted previously, business opportunity financing and investing does not involve the purchase of commercial real estate, so arrangements must be made for a long-term lease. The length of the lease is important because the normal business finance terms will restrict the length of business financing to the period covered by the lease (although you should anticipate a ten-year maximum for investment business loans). In other words, with a seven-year lease, the commercial loan is likely to be for seven years, and even with a fifteen-year lease, the commercial financing will probably expire in ten years.
When buying a business, inquire about the possibility of including commercial real estate. With the inclusion of commercial property, you can obtain a longer business loan and the interest rate will be lower. However, improved business financing terms should not be the sole factor you look at, since the absence of a commercial mortgage can prove to be a significant advantage in a declining real estate market.
Before any offers are made to buy a business investment, borrowers should discuss their financing options with an expert for business opportunity loans. These discussions should include issues such as potential purchase price, down payment possibilities, seller financing, buyer credit scores, tax return requirements and collateral options.