How To Buy Commercial Property With No Money Down

Over 100% SBA Financing Possible

100% commercial real estate financing is possible and some lenders will actually allow much higher leverage of up to 150% or more for the right borrower/right business.

The SBA 7a program provides a business mortgage loan that allows an existing business to get either a business property loan or business acquisition financing with no down payment thus allowing the small business to conserve their cash for other business needs. This is possible, because the 7a is first and foremost a "cash flow" loan, meaning the lender's primary underwriting criteria is that the business must have strong enough cash flow (post-closing) to service the proposed debt. Because of this, lenders have the ability to offer loan amounts that are higher than the purchase price or value of the real estate or in the case of a business expansion, 100% financing for the acquisition of a business IF (and only if) the existing business is strong and has enough equity on it's balance sheet.

Business owners can finance not just the purchase, refinance or construction of a building, but all closing costs, payments during construction, working capital, building improvements, equipment and other business debt into a commercial business property loan.

Going above the value of the building and still having proper debt service coverage is made easier by the fact that 25 year amortizations are possible for business property loans as long as the commercial real estate is at least 51% of the total amount financed. So if you take a 100% finanicing "plus" loan you need to be mindful of the fact that you will have "negative equity," which could make it more difficult to refinance at a later date, but this type of financing can be advantageous for growing businesses looking to hang onto their cash.

Purchase & Refi at over 150% Loan To Value

We frequently see situations where borrowers have other debts they would like to consolidate into a business property loan and if the business cash flow will support the payoff of the debt then it sometimes makes good sense to do it.

Here is a recent example for a business that was growing quickly and had taken on lots of debt to accomodate growth. They decided to construct a building from the ground up and roll in all existing debt:

Purchase of Land and Building Construction Costs: $1,650,000
Existing Debt: $830,000
Working Capital provided by Lender: $15,000 (this was limited by what they could qualify for)
SBA Loan Fee: $67,500*
Total Loan Amount: $2,562,500
Total Loan to Value: 155%

*The SBA loan Fee is expensive, but there are no origination fees or points.

On the surface, this seems like it might not make good financial sense for the borrower to close on a loan like this, however, by consolidating all of the business debt into the new mortgage the business cut it's monthly costs by $15,000 per month.

Admittedly, in doing so, they extended the length of time they would be paying on all of their debt, but for them it was all about growth and now they have freed up a significant amount of monthly cash flow and they can afford to pay large amounts towards the principal on the new loan as well.

In fact, in this case, if they pay an extra $5000 per month towards principal they would pay the entire loan off in under 15 years and still have $10,000/month in additional positive cash flow.

100% Commercial Loans

The 100 percent commercial loan for real estate almost always requires that you already own the business for which you are trying to finance a building.

The exception is for a business expansion.

If you are expanding your current business by purchasing another business (with or without a building) or adding a location you might be eligible for a commercial loan with no down payment or it might be possible to leverage the equity on your balance sheet in lieu of a down payment to get better terms. Please contact us for more about how this works.

Some examples (far from a complete list) of eligibleowner occupied business properties we have helped get 100% financing:

General Purpose or Multi-Use buildings (buildings that could be occupied by most any type of business)
Professional Office Buildings for CPA's, Attorneys, Insurance Agencies and others
Office Condos
Medical Practice Buildings - click here for info including new 25 year fixed rate program
Dental Practice Buildings - click here for info including new 25 year fixed rate program
Veterinary Clinics and Hospitals - click here for info including new 25 year fixed rate program
Some Quick Serve and Fast Food Franchise Restaurants
Independent Family Owned Restaurants
Pre-Schools and some Daycares
Pharmacies
Many types of Retailers
Fitness Center Buildings & Gyms
Physical Therapy Buildings, Occupational Therapy Buildings
Independent Car Dealers
HVAC Contractors
Independent Insurance Agencies
Auto Repair Facilities - both independent and franchises in good standing. Also eligible would be:
- Tire Businesses
- Muffler Repair
- Transmission Sales and Repair
- other similar Automotive Businesses

SBA 100% commercial real estate financing is NOT for investment properties (multi-family, apartments, single family, single tenant, multi-tenant , etc.). However, you can use SBA financing to purchaseself storage, mini storage or boat and RV storage with as little as 10% downAND the down payment can be borrowed .

Click here for more info or call us at1-800-414-5285 to discuss what is possible.

"Special" or "single use" properties like hotels, gas stations, golf courses, RV Parks for visitors staying short term, etc. require a down payment, but the SBA is quite flexible on the source of the down payment.

Also, smaller loans may not be eligible, so please contact us to discuss.

Businesses Leasing Property

If you are looking for 100% financing for a business that will occupyleased space, thenclick here for info on how to do that.

If you have10% down and you are financing amulti-purpose building then clickhere to read about the low rate 25 year fixed rate options.

*If you have a seller willing to hold a second mortgage on "standby" for 5% of the sales price of the business/building then the SBA only requires a 5% down payment.

100% Commercial Real Estate Financing Positives, Negatives & Loan Options

This program is typically available as a 1 year fixed, a 5 year fixed or a quarterly floating rate with a 25 year amortization - all of which adjust with the Prime Rate.

The most common business property loan offering is a 5 year fixed rate with a 25 year amortization. Some of the fixed rate lenders have tougher underwriting than others and if you cannot qualify for a fixed rate then the quarterly adjustable rate is worth looking at as long as you know what you are getting into.

"Prime Plus Loans"

If you cannot qualify with a fixed rate lender, then a floating rate lender might be worth a look.

Oddly enough, even for borrowers putting 10% or more down, many SBA lenders offer variable or "floating" rates at a margin above thePrimeRate. Most of the 100% financing variable rate loans that we have seen end up somewhere between Prime plus .50% and Prime plus 2.75% depending on the transaction. Obviously, the rate goes up with each increase in the Prime Rate, but it can also go down when Prime drops.

Is This Program Right for You?

The reality is that you may not have the cash to put down 20% to 30% for a traditional bank loan, but you might have a great business and having a building of your own could have it's advantages and will most likely provide significant value down the road. (Keep in mind that 10% down is readily available via either the 7a or the 504).

Rationale for why you might consider the variable rate if you cannot qualify for a fixed rate:

The program only has a 3 year prepayment penalty and it is only 1% in the 3rd year, so if Prime is rising by the 3rd year (and to protect yourself you have to assume it will) then you might have the ability to refinance with either a small penalty or no penalty at all. Of course you will need equity in your commercial real estate to be eligible for a refinance, and 2 or 3 years might not be enough time to accumulate the 20% equity typically needed, but it is possible and some conventional lenders only require 15% equity for the refinance (or purchase) of "owner occupied" business property.
If you are constructing a buildingthere is a good chance that your building will appraise higher than what it cost you to build. This is very important, as the sooner you have 20% equity, the sooner you will be able to refinance should your rate be rising.
You might be able to purchase a building for less than it's current appraised value in which case you would have "built in" equity at closing putting you closer to having the necessary equity to refinance later.
You can prepay extra principal of up to 25% per year for the first 3 years and as much as you want after that.
If you currently are making lease payments chances are there is an escalation clause in your lease and your lease payments will be going up over it's term, so it is possible that any adjustments in loan payments would be similar to what you would have had if you were to continue leasing.
Perhaps this one is the most important ...in order for the PrimeRate to go up, the economy needs to be heating up, so one would hope that if the economy is doing a lot better then your business should also be doing better making you more able to handle rising payments.
Most of these loans "re-amortize" annually, so if you make lump sum prepayments of principal your payments will re-adjust each year to help keep them low.
Tenants-you can have tenants. SBA loans require that your business "owner occupy" at least 51% of an existing building or 60% of a building you would construct, but you can lease out the rest of the space, so your tenant(s) can help offset your costs - possibly dramatically. One caveat with this...the SBA does not allow you to use SBA guaranteed funds to "finish out" space for a tenant, so keep that in mind if you are building.

Appreciation and Buying Right

Given that commercial property prices are still relatively low in some areas of the country this might be the last time for a while to get a relative bargain on a suitable building...and as mentioned above, if the economy starts heating up then real estate prices typically rise and one would certainly hope that your property value would go up as well, so it is possible that you could build equity quickly.