If you are considering purchasing a building for your business to occupy, obtaining financing from a lender is typically a very important part of the process. It is best to get started early-on, so it will not hamper your ability to close on the property.
It can vary, but we have found the basic approach is typically as follows:
INITIAL MEETINGS:
It would be beneficial to first meet with your accountant or business financial advisor and with your banker to discuss the idea purchasing of a building. If the advisor or banker is negative to this concept due to financial position of the business, you might want to either put the idea on hold until your financial position improves or start the process of finding a “partner” that can help you pursue a building purchase.
PREPARE YOUR FINANCIAL INFORMATION:
Things will move much quicker if you are able to give your lenders both the most updated and the past three years of financial information on you and your organization, including tax returns and W-2s.
DETERMINE REQUIREMENTS:
It will be important for you to best assess the needs and desires of your organization concerning your building. The most important items to consider include the size of building, your company’s physical needs inside and outside the building, your financial budget and the location you desire.
LOCATING THE RIGHT BUILDING:
Finding the best building for your business will take time and effort on your part. We believe it is best to start by engaging a competent commercial real estate broker/advisor who can help find you the right property, guide you through the process, negotiate a written contract and get you to the closing table. It will be very important to have a due diligence period long enough to complete the financing process, understand the physical nature of the property and determine the possible costs to make any necessary changes to the property.
CREATING A SIMPLE LOAN PACKAGE:
In order to obtain the most competitive terms from lenders, we find it best to have a simple loan package to share with each lender. The following are the items important for this package:
• Building pictures
• Location map
• Building fact sheet/summary
• Basic terms of your contract
• Summary of your sources and uses of funds
• Financial Proforma
• Any other specific requests/requirements
ENGAGING LENDERS:
At this point, you generally have had discussions with your banker about their interest in lending the money for this project. We believe it beneficial to have discussions with other lenders to best understand the market for loans in your area and to keep your banker “honest” and “competitive”. There are many lending options, including obtaining a loan through the SBA. Work with your financial advisor to determine what is best for you and your business.
SUMMARIZING LOAN QUOTES:
Once you have your loan quotes from the various banks, it will be helpful to summarize each quote with the following in mind:
• Interest rate
• Interest rate lock period
• Amortization period
• Expected closing costs
• Expected guarantees of borrower or borrowers
• Which lender will be best in the event future problems arise
• Lender’s ability to meet the timing of your purchase
FINALIZE LOAN DECISION:
After reviewing the various loan quotes, it would be best to narrow down the options to two lenders. Meet with each lender to make decision as to which lender/loan will be best for you and your organization. Over time, things change and those friendly bankers today may not be your friend in the future.
CLOSING OF PROPERTY AND LOAN:
As you move towards closing, you should be in regular contact with the lender. Remember, without their money you probably won’t have a closing! The lender and closing attorney should be able to keep you on track with closing requirements. If possible, obtain the loan documents prior to the closing and have a real estate attorney review them. Typically, there is not much flexibility in these loan documents, but there may be some minor changes you can make. It is also very important for you to understand what you are agreeing to in the loan documents prior to executing them.
