Funeral homes, assisted living facilities, campgrounds and other special purpose properties represent one of the most difficult commercial loan situations which will be confronted by a business owner. Unique properties are not easily understood by traditional lenders, so the most common solution involves finding a non-traditional lender for funeral home financing as well as commercial financing for other special purpose properties. Such non-traditional lenders will be appropriate for purchase situations as well as refinancing and new construction.
KEY REASONS FOR DIFFICULTY IN ARRANGING COMMERCIAL FINANCING FOR SPECIAL PURPOSE PROPERTIES
(1) By definition special purpose properties are not similar to other commercial properties. This makes many lenders uncomfortable due to the likely difficulty of finding another owner for a unique commercial property should it be necessary due to a loan default.
(2) For funeral homes and many other special purpose commercial properties, most of the business value is represented by non-real estate assets. With traditional commercial lenders that focus on commercial real estate loans, it is almost impossible to get a loan based on the real estate value and the business value. For example, it is not uncommon to have a situation in which the real estate for a funeral home is valued at less than one million dollars while the overall business value is in excess of three million dollars.
(3) Because commercial financing is so difficult to arrange for special purpose properties such as funeral homes, assisted living facilities and campgrounds, sellers of such properties are generally willing to provide substantial seller financing to assist the buyer in acquiring the business. However, many traditional lenders do not recognize or accept seller financing as a means of reducing down payment requirements for special purpose properties.
(4) Many lenders simply do not understand the business complexities associated with a special purpose property. As a result, it is not uncommon for these lenders to attach onerous and expensive requirements such as business plans and environmental reviews. In most cases such lenders do not even want to make the business loan but will use undesirable loan requirements as a means of appearing to approve a loan when in fact they have disapproved the loan by adding commercial loan terms that they do not expect a commercial borrower to accept.
COMMERCIAL LOAN SOLUTIONS FOR SPECIAL PURPOSE PROPERTIES
For a business borrower facing the situation described above, the highest priority should be to locate a non-traditional commercial lender that engages in the following commercial loan practices:
(1) Openly welcomes special purpose properties and routinely finances such properties.
(2) Provides commercial financing for both the business and real estate.
(3) Accepts substantial seller financing.
(4) Does not add special requirements to the business loan for special purpose commercial properties.
(5) Has a history of making loans for the specific type of property under consideration.
(6) Can accommodate both small and large commercial loans for special purpose commercial properties (for example, loans as small as $100,000 and loans as large as $5 million or higher).