Answers - Real Estate

I had a lot of great questions come in over the past week that covered topics such as construction loan interest calculations, multifamily financing, hotel financing, and private money lenders. The one that was the most interesting concerne

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

d small business real estate financing.

Buying real estate for your small business offers you, as the business owner, several advantages over leasing. The first advantage is that financing the real estate purchase helps small businesses gr

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

w into larger businesses by preserving capital during expansion. Growing a business is a cash management balancing act and the less money buried in facilities means more money for other necessary functions.

The second advantage is tax rela

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

ed. Funds to support the business can be diverted to help your personal portfolio by building equity in the commercial real estate housing the business. The lease payment that benefited your former landlord is now helping you reduce curren

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

business income from a tax standpoint, yet keeping it in your pocket through your real estate. Many owners take the property in their personal names and have the business pay rent to them rent to cover the property’s operating expenses. S

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

me even have additional tenants to supplement the cash flow.

The third advantage relates potentially to your estate. If the property is in personal name and the business is unwound, sold, or terminated for any reason, that asset is not par

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

of the business transaction. This can simplify an otherwise complex situation.

There are two types of small business real estate loans. One is guaranteed by the Small Business Administration (SBA), the other we’ll call “conventional.” B

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

th offer a business owner a loan amount up to 90% of the purchase price of the property used for the business. The government guaranteed financing tends to have a somewhat lower rate, but requires a great deal more paperwork. Conventional

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

inancing is the more flexible by offering different documentation requirements and potentially faster funding.

Conventional Small Business Real Estate Financing

In recent years, some lenders have created SBA “look-alike” or conventional pr

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

grams that have fewer restrictions than SBA-guaranteed financing. For example, they allow the owner-user to occupy less space in the property than the 51% required by the SBA, allow for reduced or “E-Z” documentation (no tax returns), and d

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

n’t require additional collateral such as a primary residence. Depending upon the type property that is being financed, conventional small business real estate loans may allow as much as 90% loan-to-value (LTV) financing, although some spe

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

cial purpose property types, such as hotels, restaurants, and gas stations are limited to lower LTVs. Construction to permanent loans are also available on a conventional basis, allowing a business owner to custom design a property for the

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

eeds of the business.

The Small Business Administration

The Small Business Administration is a quasi-governmental agency established to assist small business owners obtain financing for their business operations. The primary form of colla

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

eral for SBA loan is owner-user business real estate. SBA funds can be used for a variety of purposes including the acquisition of business real estate, business property, operating capital and any other legitimate business purpose.

SBA lo

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

ns are typically used for single-use or single-tenant properties where the owner of the property is the owner of the business using the property. The SBA’s rule of thumb is that 51% of the property must be used by the owner-operator to qual

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

fy for the agency’s guarantee. There are often other restrictions placed upon the owner to obtain this financing such as: Annual reporting and cross-collateralization with the owner’s primary residence. The SBA finances office buildings,

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

etail centers, automotive centers, warehouses, light industrial (manufacturing) facilities and a host of other property types.

Most federally regulated financial institutions offer some form of SBA guaranteed financing. It’s too profitable

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

for them to pass up. Unfortunately, not all of them are good at it.

Realistically, you should be in business at least two full profitable years and have another three to five years of history working in that business if you business if new

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

You’ll need to show a lender how the new property will benefit your business through projections and in particular, the SBA is always concerned with how many new employees you are likely to hire. In the final analysis, there is a wider ra

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

ge of financing options for the small business owner today than ever before. If the opportunity presents itself to you, small business real estate usually makes sense for both the business and to the owner as a personal wealth building tool

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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