How To Get A Loan To Buy A Commercial Property For A Restaurant When You Have No Cash

You can cook, you've always dreamed of owning a restaurant, and you just noticed in the commercial real estate listings that the perfect property is on the market. Unfortunately, you don't have a downpayment for a commercial property.

Luckily, there is a solution – While it can be challenging to get a loan to buy commercial real estate without some cash on hand, it isn't impossible. Check out these options:

1. Find an investor

The easiest way to buy a commercial property for a restaurant when you don't have any cash is to find an investor. If you have friends, family, or colleagues who have money to invest, approach them, just as you would a bank, and present them with a detailed business plan outlining your plans for the commercial space.

If they agree to invest in your restaurant, draft a legal document regarding their level of involvement in the restaurant as well as your repayment scheme. As their money is an investment rather than a loan, your repayment plan should be based on profits. If you don't have any profits and can't pay them back, the investors can simply claim the loss as a capital loss.

2. Ask the seller to finance the loan

If the seller owns the commercial property for the restaurant outright, ask him or her to finance the property for you. Rather than taking out a mortgage from a bank, you borrow the funds from the seller, and to avoid a down payment, you convince the seller to finance 100 percent of the loan.

If the seller is not willing to finance 100 percent of the restaurant, explore combining seller and bank financing. For example, if the bank is willing to cover 80 percent of the loan, ask the seller to cover 20 percent. You can use the 20 percent as a downpayment for the bank loan,

3. Pay the down payment in installments

If you cannot find a way to avoid paying a down payment, talk with your lender about paying it in installments. If you find a lender who is willing to accept cash flow financing, you can pay the down payment in installments after you open the restaurant.

In order to convince a lender to accept this type of arrangement, you may need a turn-key property, meaning you can open the restaurant almost as soon as you close on the loan. That way, you will have cash flow right away to pay the downpayment.

If you need to renovate the property to prepare it, the delay in cash flow may dissuade the lender from accepting the down payment in installments.

4. Explore asset financing

If you are buying a commercial property that was previously a restaurant, you are likely buying all of its contents as well. In some cases, you may be able to liquidate some of these contents and use the proceeds to pay your down payment. This arrangement is called asset financing.

There are two ways for asset financing to work. In the first case, the lender has to agree to accept the down payment after the loan closes. Essentially, you arrange the sale of the asset, and immediately after you close on the property, you sell the asset and give the cash to the lender.

In the other scenario, the seller of the restaurant agrees to give you the asset before the sale is complete. You sell it and use the proceeds as the down payment. When you present that to the bank, the loan closes.  

5. Approach your suppliers

There may be a surprising source for your downpayment: the restaurant suppliers. In most cases, the suppliers who sell the restaurant its food, liquor or other supplies want to see the restaurant stay open. If it closes, they lose a client.

Because of that, if the suppliers are confident in your ability to run a restaurant well, they may loan you the down payment you need to get a commercial real estate loan so you can buy the space for your restaurant.