When dreaming about owning the perfect building in the perfect location, it’s easy to focus on the positives… how much visibility you’ll have, how beautiful the building will be, how much revenue you’ll generate in that location.
“It’s going to be perfect.”
But when you start looking into commercial loan options or financing for the building, the rosy colored lenses quickly start to fog up with the realization that up to 30% down could be required. Of course, you can do the math, but when you’re looking at a $500,000 property, your down payment could be upwards of $150,000, and this does not include closing costs like attorney’s fees, inspections, and appraisal costs which can add as much as $5,000 to $10,000 to your out-of-pocket expenses.
If you’re in a position to put 30% down on your property of choice, then you’re in great shape. If not, your lender may be able to offer a SBA (Small Business Administration) loan which only requires you to put down 10% of the total project cost. The SBA process is not for the faint of heart and entails higher fees coupled with intense oversight of the smallest details, but if you’re up for a challenge and are not able to put more than 10% down, then this may be your only option.
But don’t let the 30% down target slow you down, if your credit score, personal finances and the loan-to-value ration (LTV) of the building are in good enough shape, you may qualify for as little as 15% to 20% down in certain circumstances.
In any case, if you anticipate putting 30% down you’ll be setting yourself up for the best financing options and can weigh the pros and cons of each option. Having 15% or less to put down will seriously limit our options and ultimately could come between you and your dream building until you’ve had more time to save up for the down payment.
For more info on the SBA process, you can visit https://www.sba.gov/funding-programs/loans.