Realty Exchange Group, Inc.

Finance

Finance

Our World Class and Service Provider Partner Network is Here to Facilitate the Purchase of Your Commercial Property

The process of purchasing a large commercial asset, quick service restaurant, convenience store or gas station can be greatly streamlined when working with the right team. Realty Exchange Group, Inc. (REGI) has assembled a World Class Team and Service Provider Partners network to both facilitate the purchase of the property(s), and facilitate the financing process. Arranging the financing to purchase is one of the most important aspects of buying a business or commercial property. Financing options can provide additional leverage even if a buyer has all cash available. Always remember, there are many financing instruments available to buyers of certain assets and business, including: Bank Debt, SBA backed debt, Mezzanine Debt, Private Capital, Venture Capital and other derivatives.

The REGI Service Provider Partners network also provides expertise in the areas of: Special Financing, property inspection, valuations, accounting and taxation, insurance, environmental, personnel training, customer service, business performance and more.

Financial Guidelines

Buyers of REGI assets are advised to be well prepared, far in advance of attempting to make a purchase. The following guidelines below, as recommended by the Small Business Association (SBA), should help the buyer understand the required information and the steps necessary to arrange financing. Please read the following or feel free to contact us for additional assistance.

1. Generally, Buyers are required to have between 15% - 30% cash for a down payment, and sometimes more, depending on whether there is real estate with the business, its valuation percentage, or if the business is being sold by itself. The down payment can come from many different sources: savings, equity buildup in your home (home equity line of credit or second mortgage on your home), a gift (usually from family members), or a retirement plan (401K, Pension, IRA etc.). "You CANNOT borrow the money or utilize a credit card for your down payment."

2. If the property is a business such as a gas station, both the business asset and the real property will be analyzed separately. It will be important to have available all required documentation to perform this analysis, such as food and beverage sales data, gasoline and fuel sales data, rental and lease agreements, licenses, etc.

3. Buyers must have a good to excellent credit rating with a strong FICO score. Any bankruptcies or multiple late payments may reduce the chances of a borrower securing financing no matter how good other criteria look. Early in the lending process, the lender will run a credit check to see if you qualify. Negative notations in your credit history should be removed or corrected well before the purchasing process begins. Also, some large oil companies have their own credit scoring mechanism based on past experience and other factors. See or contact your REGI representative for further details.

4. Lenders favor a borrower with experience in the business they are buying or in a related industry, or with specific job skills relating to the business they are buying. Lenders also like to see management experience or buyers who have previously owned a business and know what it takes to grow and keep a business on track. You will need to provide a resume of your work experience. Have one that focuses on your industry strengths and management experience available.

5. It is recommended that buyers draft a mini business plan for the business they are thinking of buying. Lenders usually require this to make certain you are knowledgeable about the business and industry into which you are buying and what you are going to do with the business once you buy it. The SBA recommends that your business plan be a 3-5 page outline, while other lenders' criteria may be more involved; i.e., where the business has been, what is happening with it now, and what you plan to do with the business once you buy it.

6. If the asset being purchased is the only source of income, then positive cash flow (or adjusted net income) must cover the debt service of the loan and provide you with an adequate income to support a standard cost of living; otherwise, this could prevent you from obtaining the loan. Lenders look closely at the tax returns of the business being sold; therefore, dealing with open and honest sellers is extremely important.

7. Other assets owned by the buyer can support the purchase. Does the buyer have equity in any real estate that can be attached to the loan? Although not imperative with some lenders, this can strengthen the deal if the other parts of your loan application are weak such as the down payment, work experience or a lower credit score.

8. Does the business being sold have management in place or key employees who are going to stay? Try to get commitments from existing key personnel and management to stay for a period of time if you are lacking required experience. This shows the lender continuity and less risk after you take over.

9. Make sure there is adequate training after the sale of the business. Lenders look for a training period from the seller of anywhere from 2 months to 12 months (depending on the type of business you are buying and your past work experience and how it relates to the business you are purchasing). Please contact REGI for further information and available training programs.

10. If there are any potential environmental risks associated with the property, such as buried fuel tanks, make sure to obtain ALL environmental reports, fuel tank reports, line data, inspections, any violations, etc. If sufficient information is not available, or if a potential hazard exists, or stricter lending guidelines are enforced, a lender may require Environmental Risk Insurance as a condition of making the loan. This is usually not expensive. Please contact REGI for more information in this area.

11. Lenders will also want to know if you have any other outside sources of income; i.e. other business income, income from a spouse's employment, rental properties, investment income, etc. You will also need to provide personal tax returns for the three most current years.

12. Please be advised the loan process can take anywhere from 30 to 60+ days to complete. Buyer organization will help streamline this process. However, this is only part of it. Make sure you are working with a knowledgeable and experienced lender who understands, far in advance, the potential roadblocks associated with the lending process. Please contact REGI or visit our Service Provider Partners for a list of top lenders who specialize in this process.