Hello,I rent a restaurant in Elsa, Texas and am searching for a way to finance the purchase of the building and equipment in it. The current purchase price is $250M for the property, equipment, and intangibles; therefore, the equity injection required from a bank in order to finance the restaurant would be approximately $50M or 20%, some banks require a 15% equity injection but to be conservative we'll stick with 20%. I'm 23 years old, just began my career in finance about a year ago and dont have $50M lying around. So, I'm searching for ways to be able to obtain financing for the purchase of the restaurant withouth having to put up $50M for the equity injection and I've come across the lease-to-own purchase method. This is how it would work, the seller and myself would draw up a contract in which he and I would agree that I would rent the restaurant for another year. After the year is up, I would have a period of about 2-3 months in which I would have the oppportunity to purchase the restaurant. The contract would also stipulate that all rent paid during the year would be applied to the purchase of the contract, and therefore would decrease the actual amount of financing needed to $214M (I pay $3M a month, $36M a year, of rent). Here is where my question, would the $36M I paid in rent that is being applied to the purchase price of $250M be considered an equity injection to the bank; therefore, only requiring me to inject $14M -the total amount of the rent that was applied to the purchase price minus the original 20%, $50? Many more details would need to be ironed out and I would have to get the seller to agree but my main question is again - would the rent that is applied to the purchase price be considered equity to the bank, therefore decreasing the amount needed to contribute to the equity injection? Any help would be appreciated guys, thanks!-Michael
moneyplan101 | Window Shopper |
10/2/2011 - 1:03 am
I can understand your problem. Here, I can advice you in another way. It is try to join with few more partners to get success in your financial problems. One of my friend had the same problem. He found another 02 partners and now he is successfully carring-out his business.
Michael:
Our company may be of assistance. We have a leveraged buyout funding program that could work in your scenario. I will be glad to review it with you at your convenience.
Essentially the way it works is this. We would arrange to generate a lump sum of cash based on their businesses performance to date. That will act as the down payment for the purchase with the balance structured on a payout basis. Please feel free to contact us to further explore how this can be of assistance to you.
George Bloom
Managing Partner
FINANCE SOLUTIONS OF AMERICA LLC
Email: info@finsolamerica.com
Web: www.finsolamerica.com
Fax: 954-200-6162
Toll Free: 800-559-7137
Direct: 561-634-5678
Michael:
Our company may be of assistance. We have a leveraged buyout funding program that could work in your scenario. I will be glad to review it with you at your convenience.
Essentially the way it works is this. We would arrange to generate a lump sum of cash based on their businesses performance to date. That will act as the down payment for the purchase with the balance structured on a payout basis. Please feel free to contact us to further explore how this can be of assistance to you.
George Bloom
Managing Partner
FINANCE SOLUTIONS OF AMERICA LLC
Email: info@finsolamerica.com
Web: www.finsolamerica.com
Fax: 954-200-6162
Toll Free: 800-559-7137
Direct: 561-634-5678
Couple of things:
1) 504 loans also require an owners injection (usually around 10%).
2) Banks can look at their down payment requirement only through an LTV. Thus, if they will loan 80% of the value of the property, you could make sure the property's market value is 20% more than the purchase price. But, this hardly works.
Example: The bank does an appraisal of the business (property and equipment) and determines that it's market value is only $200,000. Then, your deal will not work - as they will only fund $160,000.
Remember that the bank is not worried about the sale price (which could be over inflated or include goodwill) but in it's actual market value of the collateral they can place a lien against. The only expection is if the business already has a ton of cash flow that they can attach.
Also, banks want to see you actually put cash into the deal. Why? Becuase if you have a lot of "skin" in the game - you will be less likely to walk away form their loan - banks and other lenders just want to get repaid. That is what you have to demonstrate - not try to find ways around their rules.
You will have to show that the business is worth more than (at least 20% more) than the purchase price to get them to even consider your loan request - and, that would come from both asset value and cash flow.
Plus, you have to convience the seller to go along as well. With your deal you are asking the current owner to take a double hit.
Your best bets would be to:
1) Get the current owner to finance without a down payment.
2) Lease the building and equipment from the current owner - grow the business over the next 5 years to a point that it generates enough cash flow to get an purchase loan approved.
Lastly, if your career is in finance, why do you want to buy a restaurant?
Couple of things:1) 504 loans also require an owners injection (usually around 10%).2) Banks can look at their down payment requirement only through an LTV. Thus, if they will loan 80% of the value of the property, you could make sure the property's market value is 20% more than the purchase price. But, this hardly works.Example: The bank does an appraisal of the business (property and equipment) and determines that it's market value is only $200,000. Then, your deal will not work - as they will only fund $160,000.Remember that the bank is not worried about the sale price (which could be over inflated or include goodwill) but in it's actual market value of the collateral they can place a lien against. The only expection is if the business already has a ton of cash flow that they can attach.Also, banks want to see you actually put cash into the deal. Why? Becuase if you have a lot of "skin" in the game - you will be less likely to walk away form their loan - banks and other lenders just want to get repaid. That is what you have to demonstrate - not try to find ways around their rules.You will have to show that the business is worth more than (at least 20% more) than the purchase price to get them to even consider your loan request - and, that would come from both asset value and cash flow.Plus, you have to convience the seller to go along as well. With your deal you are asking the current owner to take a double hit. Your best bets would be to:1) Get the current owner to finance without a down payment.2) Lease the building and equipment from the current owner - grow the business over the next 5 years to a point that it generates enough cash flow to get an purchase loan approved.Lastly, if your career is in finance, why do you want to buy a restaurant?
Thanks for the post. Current owner isn't willing on financing without a downpayment of at least half of his asking price. Cash flow is there like I mentioned, the monthly rent I pay would cover the mortgage payment on a 20yr am $300m dollar loan plus some, it's the equity injection I'm having a tough time coming up with. I'll think of something though. The restaurant makes money, its the rent payment that's draining most of it.
Couple of things:1) 504 loans also require an owners injection (usually around 10%).2) Banks can look at their down payment requirement only through an LTV. Thus, if they will loan 80% of the value of the property, you could make sure the property's market value is 20% more than the purchase price. But, this hardly works.Example: The bank does an appraisal of the business (property and equipment) and determines that it's market value is only $200,000. Then, your deal will not work - as they will only fund $160,000.Remember that the bank is not worried about the sale price (which could be over inflated or include goodwill) but in it's actual market value of the collateral they can place a lien against. The only expection is if the business already has a ton of cash flow that they can attach.Also, banks want to see you actually put cash into the deal. Why? Becuase if you have a lot of "skin" in the game - you will be less likely to walk away form their loan - banks and other lenders just want to get repaid. That is what you have to demonstrate - not try to find ways around their rules.You will have to show that the business is worth more than (at least 20% more) than the purchase price to get them to even consider your loan request - and, that would come from both asset value and cash flow.Plus, you have to convience the seller to go along as well. With your deal you are asking the current owner to take a double hit. Your best bets would be to:1) Get the current owner to finance without a down payment.2) Lease the building and equipment from the current owner - grow the business over the next 5 years to a point that it generates enough cash flow to get an purchase loan approved.Lastly, if your career is in finance, why do you want to buy a restaurant?
Thanks for the post. Current owner isn't willing on financing without a downpayment of at least half of his asking price. Cash flow is there like I mentioned, the monthly rent I pay would cover the mortgage payment on a 20yr am $300m dollar loan plus some, it's the equity injection I'm having a tough time coming up with. I'll think of something though. The restaurant makes money, its the rent payment that's draining most of it.
Couple of things:1) 504 loans also require an owners injection (usually around 10%).2) Banks can look at their down payment requirement only through an LTV. Thus, if they will loan 80% of the value of the property, you could make sure the property's market value is 20% more than the purchase price. But, this hardly works.Example: The bank does an appraisal of the business (property and equipment) and determines that it's market value is only $200,000. Then, your deal will not work - as they will only fund $160,000.Remember that the bank is not worried about the sale price (which could be over inflated or include goodwill) but in it's actual market value of the collateral they can place a lien against. The only expection is if the business already has a ton of cash flow that they can attach.Also, banks want to see you actually put cash into the deal. Why? Becuase if you have a lot of "skin" in the game - you will be less likely to walk away form their loan - banks and other lenders just want to get repaid. That is what you have to demonstrate - not try to find ways around their rules.You will have to show that the business is worth more than (at least 20% more) than the purchase price to get them to even consider your loan request - and, that would come from both asset value and cash flow.Plus, you have to convience the seller to go along as well. With your deal you are asking the current owner to take a double hit. Your best bets would be to:1) Get the current owner to finance without a down payment.2) Lease the building and equipment from the current owner - grow the business over the next 5 years to a point that it generates enough cash flow to get an purchase loan approved.Lastly, if your career is in finance, why do you want to buy a restaurant?
Thanks for the post. Current owner isn't willing on financing without a downpayment of at least half of his asking price. Cash flow is there like I mentioned, the monthly rent I pay would cover the mortgage payment on a 20yr am $300m dollar loan plus some, it's the equity injection I'm having a tough time coming up with. I'll think of something though. The restaurant makes money, its the rent payment that's draining most of it.
moneyplan101 | Window Shopper | 10/2/2011 - 1:03 am
finsolamerica | Performer | 9/23/2011 - 2:24 pm
finsolamerica | Performer | 9/23/2011 - 2:24 pm
phanio | Contributor | 8/4/2011 - 2:20 pm
MichaelCantu | Performer | 8/10/2011 - 9:52 pm
MichaelCantu | Performer | 8/10/2011 - 9:51 pm
MichaelCantu | Performer | 8/10/2011 - 9:48 pm
ngoriel | Community Moderator | 8/1/2011 - 8:08 pm
- The purchase of land, including existing buildings
- The purchase of improvements, including grading, street improvements, utilities, parking lots and landscaping
- The construction of new facilities or modernizing, renovating or converting existing facilities
- The purchase of long-term machinery and equipment
Click http://www.sba.gov/content/cdc504-loan-program for more information about the 504 loan program.Join The Discussion
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