How to Find the Money to Buy a Business
or Commercial Property

by Doug Perry
Commercial Realtor ®

First of all, people have been buying businesses and commercial property for years. Because the experience to you is new, it can seem a little overwhelming. The steps involve knowing how much money you're going to spend, finding the business you want to buy, making an offer, having the offer accepted, opening escrow, obtaining the money, and closing the transaction.
 

Now you need to find someone to loan you the money.

How much can you afford? When banks loan to a new business or on commercial property, they want to know "for sure" how you expect to make your payment. They tend to follow a checklist of qualifications, but will sometimes make concessions if it's a good opportunity and a strong buyer.
 

The checklist:

1. How long have you been in this particular line of work?
   
   If you've been working in the same industry for more than five years, this is a big plus.
   
   
2. Have you had management experience?
   
   Running your own business is a lot different than being an employee and letting other people pay the bills. If you have more than five years of related experience - management, payroll, operational - is a big plus.
   
   
3. Where would your down payment come from?
   
   Lending institutions are looking to see if you have adequate savings in the bank for the down payment and adequate money for operating cash flow once you've purchased the business. Most people don't have this type of cash available to them, so this is where we get creative.
    

Creative Financing

1. If you own your home and have adequate equity, this is a great source of cash for your down payment. You can either obtain an equityline or refinance your house and "pull out" money for the down payment. However, if you have to borrow all the equity out of your house, then the lender may not have enough of a lienable property to loan against if you default on your note. This could be a problem and adjustments might have to be made.
   
   
2. You can draw from a 401k account, sell stock, and/or borrow from family to come up with the down.
    

Once you have your down payment, what next?

Just as when you buy a house, you simply have the money waiting in savings for the close of escrow. Then, a few days before the close date, the escrow officer will call you with the total amount of money you'll need to have (in the form of a cashiers check) when you go to sign documents for the close.

NEXT TIME: Narrowing the Field: What are You Looking For?