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Financing Alternatives


Once you have made the decision to purchase office space, it is a good idea to determine how you will be paying for the property before getting too involved in the process.  There are numerous sources and means to fund the purchase. Some of the more popular methods are listed below:
 

Loan Type

 Description of Loan

SBA 7a Loan

 This is SBA’s primary and most flexible loan program, with financing guaranteed for a variety of general business purposes. It is designed for start-up and existing small businesses, and is delivered through commercial lending institutions.

SBA 504 Loan

 Provides long-term, fixed-rate financing to small businesses to acquire real estate or machinery or equipment for expansion or modernization. Typically a 504 project includes a loan secured from a private-sector lender with a senior lien, a loan secured from a Certified Development Company (CDC - funded by a 100 percent SBA-guaranteed debenture) with a junior lien covering up to 40 percent of the total cost, and a contribution of at least 10 percent equity from the borrower. The maximum SBA debenture generally is $1.5 million (and up to $2 million in some cases).

Adjustable
Commercial
Mortgage

 A commercial loan in which the interest rate is adjusted periodically  to a specific index such as Prime or T-Bills.

Construction Loan and Take-out

 A commercial construction loan tied in with a  pre-arranged takeout loan in place.

Fixed Rate Commercial Mortgage

 An interest rate that remains constant throughout the term or the commercial mortgage.

Hard Money Loan

 Commercial loans from private lenders based primarily on the property value.

Bridge  Loan

 A short term, interim or project type commercial loan. Usually 2 years or less.

Joint Venture

 A financial partner who has a financial interest in the development or ownership of the property.

Sale-Leaseback

 Lender purchases land and leases back to borrower for a fixed rent plus other considerations. This type of commercial mortgage can produce more dollars than a typical commercial mortgage depending on strength of the borrower.

Second Mortgage

A commercial loan secured by equity, but behind that of the first lien.

Wraparound Mortgage

 Lender makes a second mortgage and assumes the first mortgage.


General Lending Criteria:

  • Banks will usually not finance more than 75% of the appraised value of the property. A SBA 504 loan only requires a 10% down payment from the borrower.

  • Properties must show sufficient debt-repayment ability by way of a debt coverage ratio of 1:20X or higher on income.

  • In cases where the property is occupied by a single tenant,  the lender will want to see the financial strength of the tenant.

  • You will need to provide an updated rent roll to the lender, which might be required to be updated yearly.

  • The lender will most likely require an environmental phase-I audit to discover any possible contamination of the site.

  • Personal guaranties of the principal owners will probably be necessary.

  • Download our SBA Guaranteed Loan Program Overview White Paper (PDF).

Lending Directories and Sources:

SBA Loan Assistance - OfficeFinder has obtained the services of a SBA loan advisor with over 20 years of SBA Commercial Real Estate loan experience to answer your quests and assist you in getting a SBA Guaranteed Loan.

C-Loans - Five hundred commercial lenders await your application. These are direct commercial lenders, not brokers, so you deal directly with the lender.

FinanceSuite on the Web - Business Loans, Equipment Leasing and Commercial Real Estate Loans.

Steelhead Capital - Customized apartment and commercial financing solutions for commercial real estate investors nationwide.

BusinessFinance - Search the funding criteria of over 4,000 sources for business loans, venture capital, equipment leasing and commercial real estate financing.

The Bottom Line:

A local expert with local knowledge and expertise on your side to assist you in purchasing office space and finding financing will ensure you find the right location, get the best deal possible and guarantee you avoid costly mistakes.

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