Owner Occupied Real Estate Loan

Owner occupied real estate is the most sought after loan type by lenders. In order for your property to be considered owner occupied, the borrowing business must occupy 51% or more of the building. Some SBA programs allow for 80-90% loan amounts for the right business. At times a business can purchase a building and have the same rent expense. These businesses are prime candidates for a commercial loan to buy their building.

Business owners will need to plan on putting 10%-20% cash toward the purchase price of the building. They will also need to ensure they will occupy 51% of the building in order to qualify for the SBA guarantee program. If cash flow still allows for a 1.25 DSC (debt service coverage), it is very likely the loan will be approved.

Lenders will risk assess the business as the primary repayment source for the loan. Historically the business will need to show improving trends at the bottom line (EBITDA). The lender will want to understand the industry and niche this business has captured. They will need to determine who sustainable the model is today and in the future.

If there are renters in a portion of the building, signed contracts can also be added to the lenders risk review to strengthen cash flow for the building. These contracts will be secondary to the businesses performance. Relying on tenants to make monthly business mortgage payments will reclassify the property as investor real estate.

Related Posts

Comments are closed.

business loan clients