The short answer A business property is a building designed around one kind of operation, like a bowling alley or car wash, and buying one means valuing the real estate and the business separately. Owner-operators often finance these purchases with SBA loans: a 504 for special-purpose real estate typically needs about 15 percent down, and a 7(a) can combine the building, business and equipment in one loan. Terms vary by lender, and the due diligence is more involved than on a standard building.
What is an owner-operator property?
It is a property where the business and the building go together. The owner runs the business on site, and the building was built or heavily adapted for that business. Lenders and appraisers often call these special-purpose properties: a building that would take real money and time to convert to anything else.
That matters in three ways. Fewer buyers can use the building, so resale takes longer. Equipment such as pinsetters, wash tunnels, fuel dispensers or kitchen hoods can be a large share of the value. And the property's value is tied to how well the business runs, which is not true of a generic flex building.
How does SBA financing fit these deals?
Most of these properties are bought by people who will run the business, which is exactly who SBA programs are designed for. Two programs come up:
- SBA 504. A fixed-asset loan, typically about 50 percent from a bank, about 40 percent from a Certified Development Company, and the rest from you. For a special-purpose property the borrower contribution is typically 15 percent, and 20 percent if the business is also a startup.
- SBA 7(a). A single loan from one lender, partly guaranteed by the SBA. It can include real estate, business acquisition, equipment and working capital, which makes it a common fit when you are buying the business and the building together.
These are general program structures, not a loan offer. Rates, terms, down payments and eligibility vary by lender and by deal, so confirm with your lender early. Alex Goff coordinates with your lender; he does not make loans. For a fuller comparison, read SBA 504 vs. 7(a) for buying your building or see our SBA owner-user purchase service.
Real estate value vs. business value
When a bowling alley or restaurant is sold with its business, the price usually covers several things at once: land and building, furniture, fixtures and equipment, and the going business itself (customers, name, staff, contracts). Each is valued differently, and lenders finance each differently.
- Real estate is supported by an appraisal of the land and building.
- Equipment is valued on age, condition and remaining life.
- The business is valued on verified cash flow from tax returns and financial statements.
If the seller's asking price is far above what the real estate appraises for, the gap has to be supported by the business's earnings. Splitting the price into these pieces early keeps you from overpaying and avoids surprises when the appraisal comes back.
Why do these deals need specialized due diligence?
A standard building inspection covers the roof, structure and mechanical systems. A business property needs that plus specialists for the equipment, environmental review where fuel or chemicals are involved, a review of licenses and permits that may not transfer, and a close look at the seller's books. Some examples:
- Lane and pinsetter equipment on a bowling alley.
- Water, sewer and reclaim systems on a car wash.
- Underground storage tanks and environmental reports on a gas station.
- Occupancy and the rent roll on self storage.
- Kitchen systems, grease traps and liquor licensing on a restaurant.
Good buyer representation builds the due diligence period around those items, so the contract gives you time to inspect and a way out if something serious turns up. See our buyer representation service for how that works.
Goff CRE Group is representing the buyer of a 15,324 SF bowling alley at 300 E Railroad Ave in Fort Morgan, on roughly 0.95 acres. The property is under contract.
