Build Equity in Your Business
Having other People pay for your mortgage and therefore buy the property for you over time is the main reason Real Estate Investments have been so popular since the beginning of human civilization.
I have read about investors in apartment buildings in Rome at the time of the Roman Empire. These were 2- to-4-story buildings where people paid rent.
The strategy was simple: you invested in a building and the cash flow from the rents paid for your living expenses and some more, building wealth over time.
Today, we refer to this wealth (in the USA) as "Equity."
Equity in this context means: "the value of a mortgaged property after deduction of charges against it."
One of the many advantages of following this simple formula is that, once the mortgage is paid off or paid down substantially, you re-mortgage the property. The proceeds are tax free (since it is a loan, not income), and your tenants pay it down anew. In other words, the purpose is NOT to pay off the building, but extract tax-free income from the building!
This cycle repeats over and over and you get a constant flow of tax-free income and wealth.
Investing on a personal mortgage works because you force yourself to pay off your home and if nothing else, you end up with hundreds of thousands in savings by the time you pay your home down.
Maybe it is not the most efficient investment strategy (as many financial advisers would rightly say so), but it is the one that works for sure!
What you can do at a personal level, you can also do at a Business Level.
Not only can you build equity and savings in the home where you live or invest in rental property and allow your renters to pay for it, but you can also take advantage of the cash flow and the rent your business is currently paying, and instead of paying down the Landlord's building, you can use this money to build equity in YOUR business!
Traditionally, the main obstacles with this strategy have been having sufficient funds for a down payment and then some more for closings costs & reserves. The lender wants to make sure you have funds left after you close escrow so you are able to pay the first few months (about 6) of your new mortgage.
While in Residential property you are able to put down as little as 5% and in some loan programs, nothing down, in Commercial Property that is not the case.
As a general rule, Commercial Property requires anywhere from 35% down to 25% down depending on type of property: office, retail, industrial, multifamily etc...
By the time you factor-in closing costs & reserves, you need some serious money to qualify. And even if you have the money, the paperwork hurdle is usually not for the faint of heart.
This is where we come in! Our mission is to empower the self-employed business owner, who represent 90%+ of the economy in terms of a source of employment.
We now offer two lending solutions up to $5,000,000, which we call: Small Balance Commercial real estate loans.
Both of these loan programs have these basic requirement:
Being in business for 3 years
Managing your accounting in a Professional Manner
These are the Programs:
The Light Documentation Program:
This one is the easiest and fastest to qualify for since you do not need to verify income! this is HUGE! there is virtually no commercial loan in the market that allows this kind of flexibility.
Down Payment: you need 25% BUT this program would allow the Seller of the property (if you are buying) to carry 15% on a second loan for a minimum of 3 years and maximum of 25 years! This means that as long as you have 10% plus closing costs plus about 3 months of reserves and you have a good relationship with the seller, you can make this deal.
Credit score: minimum is 650 and we can help you increase it at no additional cost.
Type of Loan: 30 to 25 years fixed rate. You can be fancy on this one and have a 5 years Interest Only Option.
The lender won't verify your income but we will verify that you can afford the monthly payment.
This program is excellent for your business to buy its own building, and/or if you are renting and your current Landlord would sell you the building, buy it from him!
You can also buy an office suite, office condo, warehouse, auto-repair shop, a retail location, office building, self-storage facility, etc...
Instead of throwing thousands of dollars per month into the ether, these same thousands of dollars would now come back to you and build you Equity!
This program is more flexible, easy and fast than many Residential Programs! It represents an opportunity to build Commercial Equity for your business in a manner that was until now not possible or available to a small business owner.
2. The second Loan Program we can offer: SBA Financing
SBA stands for Small Business Administration.
The U.S. Small Business Administration, commonly called the SBA, is an independent agency of the federal government dedicated to supporting small businesses.
It was created in 1953, when President Dwight D. Eisenhower signed the Small Business Act into law.
Its basic purpose is to aid, counsel, assist, and protect small business concerns, while helping preserve free competitive enterprise and strengthen the national economy.
The SBA does not usually lend directly to ordinary businesses; instead, it often sets loan guidelines and reduces lender risk, making it easier for banks and other lenders to provide financing. It also provides business counseling, disaster-recovery assistance, government-contracting support, and training resources for entrepreneurs and small business owners.
The SBA has two programs suitable for Purchasing Real Estate:
SBA 504
SBA 7(a)
7(a) and 504 are program names derived from the sections of federal law that authorize those lending programs.
The SBA 504 program, when used to buy real estate, allows you to put a down payment of as little as 10% down and generally the SBA7(a) program allows you to put down as little as 15%.
The main differences is that 7(a) is more flexible and more people would qualify under this program.
The attributes and characteristics of each of these programs are too long to describe. The main thing to remember is that the SBA structures these loans in such a way that Banks have a diminished risk, hence they have an incentive to lend.
Because the transaction needs to go through a Bank, in order to qualify, you would need to go through a full documentation process. This involves personal and business tax returns and numerous other documents.
To be approved for these SBA programs you mainly need three things:
Have all your Documents & Tax Returns Available (past 3 years)
Have a personal and business positive cash flow of 1.15 times your debt service.
Have a good production track record in your Industry or Service.
This means that if your total debt payments are $100 per month, your total income should be $115 per month or more.
In other words, your personal and business cash flow should be at least 15% greater than your total debt service.
The beauty of these programs is that they will also consider PROJECTIONS!
I look forward to brainstorming with you to help you buy or refinance your business property!
