Understanding Commercial Real Estate Financing for Small Businesses

Explore ways you can grow your business today by investing in commercial real estate. While owning your commercial property isn’t for everyone, it can be a great way to grow your equity and avoid rental costs. Find out how you can take advantage of real estate in your area with a competitive financing option.

Commercial financing for real estate requires different features than typical real estate financing. To secure a building for your company you typically need to own your business for at least five years. There are financing options for new business owners but they aren’t as flexible as options for more experienced owners.

Another factor to consider is the size of the property you’re looking to invest in. While you don’t want a costly building that you won’t fill, you also don’t want to outgrow property in just a few years. If your business is planning aggressive expansion, then it may be better to consider leasing until you can determine the size of building you’re ready to commit to for a longer period.

Most publicly traded companies prefer to lease rather than buy. A depreciated real estate asset is the last thing you want on your books, so consider a more balanced approach and choose an affordable lease.

Small businesses benefit from tax benefits by purchasing real estate through financing, but large C corp businesses receive fewer tax incentives. Have an accountant compare the tax pros and cons of owning your building before you choose to commit your financing to this investment.

Once you’ve determined that your business can benefit from owning its real estate, it’s time to compare loan types. Choose a conventional bank loan, SBA loan, seller financing, or other financial options.

A conventional loan typically requires a larger down payment, but it can be a reasonable way to enjoy a long-term length and competitive interest rates. An SBA loan can only require as little as 10% down, but the application can be lengthy and come with restrictions for larger, more established businesses. Seller financing can be a great way to secure financing if there’s an issue with your application. Some sellers are more likely to overlook a low credit score, new business, or other unusual features of your application.

Work with a financial institution near you to compare these and other options to secure your commercial real estate. Enjoy the freedom of making your renovations and invest in your assets to grow equity and keep your business moving forward.

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