Business Acquistion Loans

Fidelity Finance Solutions is a specialist in providing you with the necessary capital to fund the business of your future. The funding can also include new equipment, rehab or any other starting-up expense.

Business Acquisition loans can be grouped into three categories.  The three categories are startup loans, business expansion loans and equipment financing.

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Startup Loans

If you don’t have a business currently but are looking to purchase a business, you can apply for a startup loan. Startup loans are offered by regular banks, the Small Business Administration (SBA), and other lenders. Before being approved for a startup loan, you will have to show to the lender that you have the skills and ability to operate a business, and you may be asked to make a down payment on the business.

SBA loans are supported by the SBA, up to 85% of the loan, and are, therefore, considered less risky if a borrower defaults. This allows a borrower to receive better interest rates and payment windows for the loan.

Business Expansion Loans

A business expansion loan is one that is provided to individuals that currently own and operate a business. This allows the lender to see first hand how risky the prospect of lending might be. It also allows the lender to gauge the ability of the borrower to run a business profitably and to pay back the loan. Business expansion loans often require that a business has been in operation for a certain amount of time before the lender is willing to extend financing

Equipment Financing

Equipment financing is not a type of loan, but financing with certain stipulations put in place for the purpose of purchasing equipment for a business. For example, in equipment financing, the asset being purchased is the collateral for the loan. This oftentimes removes the need for additional collateral or a thorough credit check.

Contact us today for a free evaluation of your financing needs from one of our finance specialists.

Real Estate Loans

Fidelity Finance Solutions can provide funding for a new business, warehouse, factory, restaurant, Manufacturing facility or any other Real Estate required for your business.

Commercial real estate loans explained

Similar to taking out a home mortgage, you can also take out a mortgage when buying commercial property. Commercial real estate lending helps business owners finance the purchase or renovation of commercial property, such as:

  • Office buildings
  • Retail or shopping centers
  • Apartment buildings
  • Hotels
  • Restaurants
  • Industrial buildings

Most commercial real estate loans require the property to be owner-occupied — meaning the business needs to physically reside in at least 51% of the building. If the property won’t be majority owner-occupied, borrowers may have to look for an investment property loan instead.

Terms and rates can vary by the lender and property being financed. Interest rates may be fixed or variable, and down payments on commercial properties typically range from 10% to 30%, with repayment terms as short as five years and as long as 25. Some loans are fully amortized — each monthly payment will be the same until the loan is paid off — whereas others might have interest-only payments with a final balloon payment at the end of the term.

Types of commercial real estate loans

A variety of commercial real estate loans exist, including bank loans, Small Business Administration (SBA) loans and bridge loans. We take a look at some of these options below.

Traditional commercial mortgage

Like a residential mortgage, a commercial loan is secured by the property being purchased. Beyond that, terms can vary by the lender. Some banks will make fully amortized loans with long terms up to 20 years and loan-to-value ratios typically up to 80%. Other banks may have interest-only loans with terms of 10 years and loan-to-value ratios of 65%.

Qualifying for a traditional commercial real estate loan is generally more difficult than other types of commercial loans. Banks want to see business owners with good personal credit and a high debt service coverage ratio (DSCR) — a high ratio shows lenders that your business is generating enough revenue to repay the loan. To calculate your DSCR, you would divide your annual net operating income by your annual debt payments; lenders typically look for a score of at least 1.25 (Some lenders can go as low as 1.15).

Despite the strict requirements, traditional mortgage loans tend to carry lower interest rates compared to some alternative lending products.

SBA 7(a) loan

The SBA’s flagship loan, the 7(a) loan, can be used to purchase land or buildings, construct new property or renovate existing property, provided the real estate will be owner-occupied. Through this program, you can borrow up to $5 million through an SBA-affiliated lender.

The rates are based on the lowest prime rate, the 30-day LIBOR rate or the SBA optional peg rate. Repayment terms for 7(a) loans used for real estate can go up to 25 years. These loans are fully amortized.

SBA 504 loan

Beyond the 7(a) program, the SBA offers loans specifically for owner-occupied real estate or long-term equipment purchases. These loans, called 504 loans, are composed of two different loans: One comes from a Certified Development Company (CDC) for up to 40% of the loan amount and the other from a third-party lender for 50% or more of the loan amount. You, the borrower, will be responsible for putting at least 10% as a down payment. The CDC portion of the loan can range from $5 million to $5.5 million, meaning the entire project being financed can be upwards of $10 million or more. The maximum term is 25 years.

Commercial bridge loans

Bridge loans offer quick financing used to “bridge the gap” until long-term financing can be secured for the commercial property. A business owner, for example, may use one to compete with all-cash bidders on a property, then refinance to a long-term loan after securing the property. Generally, most bridge loans come with very short terms (often six months to three years), and must be paid off in full after maturing. Interest rates on bridge loans are typically a few percentage points higher than the going market rate.

Commercial bridge loans are more readily available from alternative lenders than banks and credit unions. Since shorter terms increase the lender’s risk, qualifying for a bridge loan can be challenging. Business owners typically need to have strong credit and a low debt-to-income ratio to be approved. Down payments generally range between 10% and 20% and often close more quickly than conventional real estate loans.

Fix and Flip Financing

 If you are an experienced Real Estate investor and wish to finance the purchase and rehabilitation of a property, Fidelity Finance Solutions can get you the financing that you need.

There is good money to be made in flipping houses, if you do it well, but there can be a financial barrier to getting started. Conventional mortgages were designed for long-term residences, which makes them ill-suited to investment property loans. As more investors entered the market to flip old properties, a new loan model was needed. The fix and flip loan was designed to fill that gap.

 

Fix and flip loans are short-term, real estate loans designed to help an investor purchase and renovate a property in order to sell it at a profit—generally within 12 to 18 months. Some investors use more conventional loans and lines of credit to finance their projects, but most fix and flip loans are hard money loans from individuals or private investors.

 

Fix and Flip Loans are most often used to purchase residential properties at auction or foreclosure, to finance renovations and upgrades, and to cover other expenses associated with the ownership of the property.

 

Fix and flip loans are designed to do exactly what they’re named for: renovating and reselling a property in a short time period. Traditional home loans are long-term investments designed to help the borrower purchase a home that will serve them for decades.

 

Fix And Flip Vs. Construction Loans

If you plan to do some construction while flipping a house, do you need a construction loan? What’s the difference?

 

Most flips involve some construction, and fix and flip loan funds can be used for all of those needs. A new construction loan, by contrast, is generally used for building entirely new residential or commercial properties, or for razing an existing building for all-new construction.

Despite the difference, many of the terms and processes are the same for both fix and flip loans and construction loans. That’s because the best option for both is often a hard money loan. As with flipping houses, new construction opportunities benefit from the flexibility and speed of hard money loans.

 

Advantages Of A Fix And Flip Loan

It’s hard to overstate the advantages of a hard money fix and flip loan for investment properties.

  1. Fast funding — Investors bidding on foreclosures or auctioned properties need to have cash-on-hand quickly. Traditional home loans can take a month to process and deliver, but hard money fix and flip loans can provide funds within the week.
  2. Flexible terms — Hard money fix and flip loans from private investors are not tied to the same rigid structures, processes, and requirements as traditional banking institutions. Borrowers who don’t qualify for traditional loans can often still work with a hard money lender.
  3. Less risk — A traditional home loan is backed by your personal credit and property, but a hard money loan is backed only by the property for which it was granted. If the worst does happen, you won’t lose your home.

 

It’s no surprise that hard money fix and flip loans are powering so much of the real estate renovation industry, but there are also advantages to investors as well:

  1. Diversified portfolios — Especially in seasons when the real estate marketing is doing well, fix and flip loans are a great way for investors to diversify their portfolios.
  2. Security — Real estate is a secure investment in general. In the case of a fix and flip loan, the property is the security. If the borrower should default, the lender can possess the property and potentially work with another flipper to get it back on the market.
  3. Short terms — Most property flips are completed in 12 to 18 months, which means lenders can see the return on their investments relatively quickly.

 

Getting Started With Fix And Flip Loans

The term “fix and flip loan” can refer to a number of different real estate loan and financing options, but among experienced flippers it is virtually synonymous with “hard money loan.” That’s because hard money fix and flip loans, unlike financing options from traditional banking institutions, were designed specifically for the fast-moving world of real estate flipping.

If you’re thinking about flipping your first property, start by learning the market and how to estimate costs.