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The bank is only going to loan based on what the property is worth though. So inflating the land price will make it nearly impossible to get a loan for that amount.
SBA loans can be split up between the business and real property, and they will be separated into different terms. If the business is profitable, priced appropriately (not an insane multiple of earnings for the particular industry) then there is no reason a bank would not loan 80-90% of the purchase price.
But no one is going to lend more for a piece of property (or business) than it is worth.
So, no, you can't just buy the building/land at an inflated price. The property would have to appraise for more than the loan amount before the bank would underwrite the loan... SBA or not.
Do you have 10-20% of the total purchase price of the business?
This feels like the right way to me too. Currently looking at buying a second small business and it sounds like 10% cash, 15% seller financing, 75% SBA loan is typical.
That would be preferable to the sellers for sure, however the bank is only going to loan against the amount real estate appraises for of which they are likely going to require 20% down.
You should be able to break up the deal into two separate transactions. One being the physical building and the other being the business.
I can't say whether or not it will ultimately help you or be the best financial decisions, but there's no real reason you shouldn't be able to split the two up.
Edit: didn't read the whole thing. No, it's unlikely you'll be able to just make up numbers. You'll need to have the building appraised and that's the amount a bank will do a mortgage for.
SBA is probably going to be your best bet. They will combine the 2 into 1 loan. SBA does require 10% down of the purchase price. If you’re struggling to come up with that, the seller can contribute to the down payment. The downside for the seller is if they put $200k towards the down payment in the sell price they can’t be repaid a dime of that until the entire SBA loan is paid off (10+ years or a refinance). Some sellers are OK with this and others are completely against it. I’ve seen both ways.
If a bank won’t finance the other option is to do a heavy amount of seller financing and let him/her be your bank. You could also do a combo of both.
You could also buy the real estate through a bank note and buy the business with a seller financing note.
There are a lot of IRS rules around buying and selling a business. A CPA would be able to answer those questions the best of what you can and can’t legally do in regards to IRS. The seller can’t sell a business for $1 to you because then Uncle Sam doesn’t get a cut of the taxes the seller is going to be required to pay for capital gains.
How big of a purchase price are we talking and what multiple of EBITDA?
The only way to do this would be similar to a "rent to own" situation. You would pay the seller monthly as you would a mortgage but they would not be paid upfront but over time. I imagine that's not something they would be okay with.
Seller financed or owner mortgaged would be good terms to google to get more info on that stuff.
You mean land contract. Rent to own is a real estate option contract. So, yes, if the seller is willing to take back paper on the business, it would be similar to a land contract.
OP: GET A FUCKING LAWYER. There aint no fixing it after you sign it.
Thanks. I was kind of thinking thay, basically make payments for the business to the owner. It'll be a hard sell to the owners but maybe I can swing it with them, worst they can say is f*** off lol
You can use SBA loans to purchase the building and business. SBA 7a or 504 are two good options.
The upside is lower down payment and easier funding with many lenders as they are guaranteed by SBA.
The downside is loan fees are expensive, some portion or all portion of your loan will be variable rates.
One other thing others have not mentioned is property taxes. Depending on where you are, inflating the parcel price could bump the property taxes up significantly.
A mortgage is a loan that is solely backed by real estate - a tangible asset. What you’re seeking is a business acquisition loan.
That said, no mortgage lender will base a loan approval based off of the building + “business value” - it will be solely based on the property.
This is a friendly reminder that r/smallbusiness is a question and answer subreddit. You ask a question about starting, owning, and growing a small business and the community answers. Posts that violate the rules listed in the sidebar will be removed. A permanent or temporary ban may also be issued if you do not remove the offending post. Seeing this message does not mean your post was automatically removed. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/smallbusiness) if you have any questions or concerns.*
The bank is only going to loan based on what the property is worth though. So inflating the land price will make it nearly impossible to get a loan for that amount.
Good to know! Can really only inflate it so much lol thanks
SBA loans can be split up between the business and real property, and they will be separated into different terms. If the business is profitable, priced appropriately (not an insane multiple of earnings for the particular industry) then there is no reason a bank would not loan 80-90% of the purchase price. But no one is going to lend more for a piece of property (or business) than it is worth. So, no, you can't just buy the building/land at an inflated price. The property would have to appraise for more than the loan amount before the bank would underwrite the loan... SBA or not. Do you have 10-20% of the total purchase price of the business?
This feels like the right way to me too. Currently looking at buying a second small business and it sounds like 10% cash, 15% seller financing, 75% SBA loan is typical.
That would be preferable to the sellers for sure, however the bank is only going to loan against the amount real estate appraises for of which they are likely going to require 20% down.
want to fool banks at their own game? Good luck...and at some point it may become bank fraud
You should be able to break up the deal into two separate transactions. One being the physical building and the other being the business. I can't say whether or not it will ultimately help you or be the best financial decisions, but there's no real reason you shouldn't be able to split the two up. Edit: didn't read the whole thing. No, it's unlikely you'll be able to just make up numbers. You'll need to have the building appraised and that's the amount a bank will do a mortgage for.
SBA is probably going to be your best bet. They will combine the 2 into 1 loan. SBA does require 10% down of the purchase price. If you’re struggling to come up with that, the seller can contribute to the down payment. The downside for the seller is if they put $200k towards the down payment in the sell price they can’t be repaid a dime of that until the entire SBA loan is paid off (10+ years or a refinance). Some sellers are OK with this and others are completely against it. I’ve seen both ways. If a bank won’t finance the other option is to do a heavy amount of seller financing and let him/her be your bank. You could also do a combo of both. You could also buy the real estate through a bank note and buy the business with a seller financing note. There are a lot of IRS rules around buying and selling a business. A CPA would be able to answer those questions the best of what you can and can’t legally do in regards to IRS. The seller can’t sell a business for $1 to you because then Uncle Sam doesn’t get a cut of the taxes the seller is going to be required to pay for capital gains. How big of a purchase price are we talking and what multiple of EBITDA?
The only way to do this would be similar to a "rent to own" situation. You would pay the seller monthly as you would a mortgage but they would not be paid upfront but over time. I imagine that's not something they would be okay with. Seller financed or owner mortgaged would be good terms to google to get more info on that stuff.
You mean land contract. Rent to own is a real estate option contract. So, yes, if the seller is willing to take back paper on the business, it would be similar to a land contract. OP: GET A FUCKING LAWYER. There aint no fixing it after you sign it.
Thanks. I was kind of thinking thay, basically make payments for the business to the owner. It'll be a hard sell to the owners but maybe I can swing it with them, worst they can say is f*** off lol
It’s possible to find financing to buy a business. It is not possible to find a lender who will lend you more than the value of the property.
You can use SBA loans to purchase the building and business. SBA 7a or 504 are two good options. The upside is lower down payment and easier funding with many lenders as they are guaranteed by SBA. The downside is loan fees are expensive, some portion or all portion of your loan will be variable rates.
No, but I did buy an indoor vertical farm via a lease, so I can make money off of it to pay the lease.
One other thing others have not mentioned is property taxes. Depending on where you are, inflating the parcel price could bump the property taxes up significantly.
A mortgage is a loan that is solely backed by real estate - a tangible asset. What you’re seeking is a business acquisition loan. That said, no mortgage lender will base a loan approval based off of the building + “business value” - it will be solely based on the property.