Owner-user financing is for the individual who is running a business and wants to buy an owner-user facility, not a residential home. Business owners can use this kind of financing to purchase, refinance, or acquire funds for renovations or improvements to tenant spaces.
The difference between investment and owner-occupied real estate pertains to a commercial space where you are operating your day-to-day business. If you are renting your employees’ office space or a business owner with a warehouse where you store items and your daily operations happen in this facility, this would be an owner-user location.
One option to get financed as an owner-user is a traditional route through the bank. When you walk into a bank and request a loan, the bank will look three years back on your financials to see if your business cash flows. When traditional lenders run your credit and personal liabilities, they want to see if you have more debt than income. That means they want to know if you and your business are profitable. The credit check is crucial because the lender wants to ensure that the borrower will pay back on time. If you are taking a conventional approach to financing (going to a bank), you typically have two options. The first option is receiving shorter-term financing, which is likely more favorable in terms of interest rates. Keep in mind, normally, in commercial financing, you don’t have that 30-year process of gradually writing off the initial cost of an asset like you have for residential real estate. The estimated amortization is going to be somewhere between 20 and 25 years. As years on the loan decrease, you have to repay the loan in a shorter period. As a result, your monthly payment is slightly higher, and you will get better terms.
The standard conventional loan down payment for owner-user financing is 20 to 25% because the lender wants to achieve a business relationship. Achieving this type of relationship means the lender looks at you as a package deal, not just one loan. You are a candidate for many options to make the bank additional money. Just think, the bank does not only provide loans. They provide lines of credit, merchant services, wire transfers, etc.… You or your business can utilize all these services and, in turn, make the bank additional profits. Profit is why the lender needs to earn the owner-user relationship. Owner-user financing is treated very differently than investment property because you become a package to the bank,
If you are a new business, not established more than two years, or not as financially secure as you could be, consider looking at an SBA, or Small Business Administration loan. Up to 100% financing is available. SBA is an agency that helps support entrepreneurs and small businesses. The SBA does not give money to anyone. They partner with lending institutions and guarantee a portion of the loan. Consider the following details to determine whether an SBA loan is right for your business. SBA lending is flexible with who they can lend money to. Conventional lending was not available to many restaurants during and after the pandemic. Although these restaurants have good cash flow, they could not receive financing due to environmental circumstances. The SBA mission is to support businesses that support the economy; if you meet this criterion (among others), you may be able to qualify. The SBA loan also has lower down payment requirements. Typically on SBA loans, you can be eligible for as low as a 10% down payment. If you need cash to support your business, consider SBA lending because you have a lower down payment. Another benefit is longer long repayment options. The longer the payment, the lower the payment. A lower payment means that you can use more cash to grow and expand your business. SBA loans are extremely slow to process, sometimes taking up to 6 months. There is also a processing fee associated with the SBA program. This 1-2% fee can be quite significant, depending on the loan amount. Also, consider that SBA loans usually require a personal guarantee. If you secure an SBA loan, you will pledge your personal assets in order to ensure that loan.
Working with a broker like Pacific Shore Capital, you get a team of experts who know how to position your business and property to obtain the right financing solutions for your needs. With access to more than 150 lending sources, Pacific Shore Capital can help you secure the most aggressive financing options. To explore owner-user financing options, call us at 619-220-0333.
With PSC, you get more than just a loan; you get expert guidance and an invested team that help make your short and long-term goals a reality.