How much downpayment is needed in this use case and do I qualify
I have a credit score of 794.
The business I would like to start is a grocery store.
I would like to purchase land ( $600 – 800K) and build a retail pad of about 8000 to 10,000 Square feet. Of that 5000 to 6000 will be used for the store and the rest will be given out for lease .
The entire project cost will be less than 2 million ( about 1.5 million land+construction ).
1. Does the bank need more than 20% of equity from me ?
2. Will the bank allow me to purchase inventory for the store with the loan amount or do I need additional capital for that ?
3. Since I will occupy more than 50% of the retail pad are there any limitations in securing a loan ?
4. SBA is the right way or just approach a lender ?
Thanks for your questions. Here are some of my thoughts:
1. Generally, lenders look for anywhere between 10 % and 30 % down payment. On an SBA 504 loan, which can be used to purchase land and construct buildings, only 10 % down is required. On SBA 7a loans and conventional bank loans, it varies from 20-30 %, but since you have strong credit, you can probably get away with the lower end of this.
2. It depends on what type of loan you get. An SBA 504 loan, for example, cannot be used for inventory or working capital. However, an SBA 7a loan can. See this article for more details: https://fitsmallbusiness.com/types-of-sba-loans/
3. Since the land will be majority owner-occupied, that means you meet the minimum eligibility requirement for an SBA loan. Of course, there are other underwriting criteria that you’ll have to meet as well to qualify.
4. SBA loans have low interest rates, long loan terms, and usually no balloon payments. All of this makes them a relatively affordable source of capital, particularly for land and buildings. Check our article on SBA loan rates (fitsmallbusiness.com/sba-loan-rates/) for more info.
Best of luck!