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Investing in Commercial Real Estate May Be a Smart Move for Your Business

If you’re a business owner who has been renting your real estate space, you may have been putting off purchasing your own space for a variety of reasons. However, it may be worth looking into, as it could be a great option for any business that wants to be in control of its expenses. By owning your commercial space, you eliminate the risk of rising rents and lease negotiations while building equity for your business rather than for a landlord.

If you have been thinking about looking into purchasing your own space, an SBA loan for commercial real estate might make sense for you. To apply, take the following steps: 

  • Determine the size, property type and location of your desired real estate. 
  • Determine which real estate loan type works best for your needs. 7(a) loans for commercial real estate are typically 25-year fully amortizing loans. Options for either a fixed term or adjustable rate are available. 504 loans can be 10-, 20- or 25-year loans, with both fixed and variable rate options. 
  • Provide the minimum down payment. The down payment needed for commercial property varies depending on the property type, business and guarantor strength. Typically, 10–25% of the purchase price is needed as an equity injection. 
  • Gather the three most recent tax returns for both the business and owner(s), and interim financial statements for the current year. 
  • Gather other lender-requested documents and information.  

Once you have this information, you’re ready to begin the process of applying for your loan.

These types of loans offer a variety of attractive benefits, including competitive rates, low fees, no prepayment penalty and a variety of term options to meet your specific needs. The loan amount you can qualify for is largely dependent on the value of the property and strength of the credit request. The 504 program offers up to 90% loan to value (LTV), and the 7(a) program can range from 75–85% LTV.  

If these loans aren’t the right fit for you, you can finance the construction or improvement of commercial buildings. Commercial construction loans for office, industrial, warehouse or retail owner-occupied properties can range from $250,000 to more than $10 million.  

Commercial construction loans have similar equity requirements to the above-mentioned loans. These loans are refinanced upon completion of construction. Loans are available for up to 25-year amortization, with a five- or 10-year rate adjustment on financing following the construction period. 

Commercial construction loans tend to have higher qualifying standards, as money is being lent for a project that is yet to be built. To qualify, the borrower will need to do the following: 

  • Provide a detailed description of the project 
  • Have a qualified builder
  • Provide the minimum down payment
  • Prove their ability to repay the loan
  • Have the property value appraised 

Although purchasing your own building initially requires a larger investment than leasing typically requires, it also allows you to build equity yourself rather than paying rent to someone else. You also get flexibility in buying or building exactly what you need and the benefit of having a stable space to run your business.  

Seth Wheatley is vice president of small business lending at Mountain America Credit Union and is responsible for overseeing and underwriting small business loans, as well as managing SBA loan products while meeting strategic goals for the credit union.

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