Everything You Need To Know About Commercial Real Estate Financing for Small Businesses
Real estate is an expensive investment, but it’s valuable for small business owners. With the right location, you can welcome your customers, carry out operations smoothly and expand into new markets. Commercial real estate financing is a big help for purchasing the ideal property for your company.
Why Would a Small Business Want To Invest in Commercial Real Estate?
There are several reasons why getting financed for real estate purchases makes sense for small businesses:
- To increase business equity: Not only does your business grow in value over time, but a great piece of property can become more valuable too. Prime real estate assets can make it easier to secure other loans in the future.
- To create the perfect office: Owning real estate lets you build warehouses and customize spaces to the needs of your equipment. You have total freedom to renovate and expand. Renting doesn’t allow this freedom.
- As an alternative source of accessible revenue: You may want to build or buy additional warehouses to rent out temporary storage for other companies. This constant revenue stream increases capital for business growth.
What Kinds of Financing Are Available for Commercial Real Estate Purchases?
There are several options available for small business owners, depending on the number of employees you have and your time in business:
- SBA loans: Loans backed by the Small Business Administration have special guidelines you have to follow, but they offer the best interest rates around.
- Traditional term loans: Bank loans offer excellent interest rates and comfortable repayment terms, but they require a great credit score and proof of solid cash flow.
- Third-party capital: Friends and relatives may be able to provide loans totally interest-free. This is a great choice for family businesses.
- Direct financing from sellers: Some sellers may decide to let you pay for the property in regular installments instead of a lump sum.
Is Purchasing Commercial Real Estate a Better Fit Than Leasing?
Choosing whether to buy real estate or rent depends on your business structure and goals. A straight building lease is often better for corporations. This is because corporate entities have to reflect varying property values on their balance sheets, which can add significant complexity to accounting.
On the other hand, property depreciation can be a positive thing for sole proprietorships and private firms, since it can be claimed on annual tax returns. This makes ownership especially desirable for small business owners and partnerships.
One additional factor that determines whether purchasing is feasible is your time in business. Startups may have a harder time securing term loans needed to buy real estate. All businesses need an office, so finding the right space is a big decision.