Get funding to start or purchase a coworking space
By far, the most common request we get from buyers is for funding assistance. Few people have enough money on-hand to start or buy a business or franchise outright. Local banks decline 80% of aspiring small business owners for loans. Let’s take a look at the most common options available for new businesses.
Traditional SBA Loans
Small Business Administration (SBA) loans offer a practical method of small business financing for entrepreneurs looking to start, buy or expand their existing coworking chains. You can use the funds to not only fund the purchase of the business but to cover buildout costs or to use as working capital once you launch.
SBA small business loans offer attractive repayments terms and low interest rates. The loans are typically not directly from the SBA. Rather, the SBA encourages banks to lend to small business owners with preferable terms and multiple loan options. In return, the SBA guarantees 75 to 85 percent of the loan for the bank if the loan defaults.
7(A) loans in particular are the preferred loan by lenders and small business owners alike because it can be used for almost any business purpose; starting a business, purchasing a business or as expansion capital. They come with low-interest rates, a down payment requirement, longer repayment terms, a collateral component and have a cap of $5 million. This loan program can be combined with other funding options such as rollover for business start-ups.
Keep in mind – the loan is backed by the government so expected increased paper works and endless amounts of hoops to jump through. If you have all your paperwork in order and are a perfect candidate you might be able to get one completed in a month, but expect it to take up to 3-4 months.
Seller financing involves the seller loaning the buyer a certain percentage of the sale as a loan by not receiving it as an upfront cash payment. The buyer makes a down payment for the business to take control and then the remaining amount is paid out to the seller in monthly or quarterly payments with interest, generally 5-7%.
For example, a business sells for $5 million. The buyer makes a down payment of 3 million and the remaining 2 million is paid in monthly installments over the next 5 years carrying a 5% interest rate.
Seller financing is most often extended to large coworking chains and other buyers with significant experience in the industry. We often see newcomers to the coworking industry ask for some form of seller financing, but due to risk get passed over for cash offers or more experienced buyers.
Short-term Online Business Loans
If other financing options fall through, and you have an established business and cash flow to borrow against, consider looking into a short-term business loan. A new crop of online business lenders are making loan decisions by utilizing algorithms, predictive modeling, data aggregation and electronic payment technology – all to determine how risky it is to loan you money. They still look at traditional factors such as your personal credit history and business metrics, but layer in non-traditional data points to build their models.
While you can expect to have a higher interest rate from these sources of capital, there’s typically no collateral required. Additionally, the transparency in pricing and time saved in accessing capital can help acquire the funds you need to start your coworking business and/or jump on the perfect deal while other potential buyers are still working on traditional funding.
401(k) business financing, also known as Rollovers for Business Start-ups (ROBS), is a small business and franchise funding method. ROBS allows you to draw money from your retirement account in order to start or buy a business without incurring an early withdrawal fee or tax penalty. This is not a loan; ROBS just gives you access to your own money so you can build your business without going into debt.
To access your money without triggering an early withdrawal fee or tax penalty, a ROBS structure must first be put in place. The structure has multiple moving parts, each of which must meet specific requirements to stay compliant with the IRS.
Get the funding you need.
If you’re looking for funds to purchase a coworking space, give us a call. We have contacts for SBA and online funding sources who understand the industry and are willing to work with you. We’ve been here before for our own spaces and know what it’s like to start from scratch – we’ve even funded new spaces with credit cards and family loans when we were young and hungry. Reach out today and let’s help get you started on your journey.