Real Estate Resources

At some point in most companies history, the goal is to purchase a facility instead of paying rent to a landlord. In a lot of instances, the reason to purchase a building is simply the company has outgrown its space and they need to decide if they should continue leasing a larger space or purchase a building as a long term investment. This can be an exciting and worrysome time for a company. In many cases, this is the biggest foray into small business financing that the company will undertake, so it's not unusual that there would be some jitters.

Most likely, you will need a loan to make this possible. If you are going to occupy more than 50% of the building, banks consider this owner occupied and want you to put in 20% of the purchase price. There are always ways to ge around putting less down, such as offering other collateral to increase the total. The most common ways of doing this are to offer up business assets or a 2nd mortgage on the owners residence. Another good route is an SBA 504 loan program which allows you to put down 10% as opposed to 20%. This is a good option and there are other advantages, but as with any government entity, you are going to have more fees and more paperwork.

As far as rates go, you can typically qualify for lower rates than your typical business startup loan. Since the loan will be secured by a piece of physical real estate, banks tend to be more aggressive with rates. Unlike residential mortgages, commercial loans are typically not sold in a secondary market. That means that the loans are kept on the individual bank's books and, therefore, they are not willing to offer such long terms. What you will normally see is a five year fixed rate and a twenty year amortization, which simply means your rate is locked for only 5 years but your payment is as if you have a 20 year loan. In recent years as competition has stiffened, its not uncommon to see up to 10 year fixed rates and up to 25 year amortization. This is good news for the borrower. Now, the way loans are priced is off the treasury rate. Typically, banks will offer between 2%-3% above the appropriate treasury rate. So, as an example, if you are seeking a 7 year loan with a 25 year amortization, most banks will price that somewhere between 2-3% above the 7 year treasury.

Ok, once you're gotten the initial scoop from your local lending institution, you need to get ready to submit a loan application. Typically, they will ask you for your last 3 years of business financial statements of all related companies. Also, they will likely require a personal guarantee and ask for personal tax returns and a personal financial statement from the owners of the company. While you're in there, they will probably also try to cross-sell you some other services, such as merchant services, a payroll services, or wealth management.

All in all, the entire process can be pretty easy to work with. Obtaining a commercial mortgage, while time consuming, can also be the easiest to get. You have strong collateral in the building and you can also can justify the cost because you are eliminating an expense (rent) and just replacing it with the mortgage payment. If you ask the right questions and come prepared, then it can be a very easy process for your company and you can be in your new building in no time.