You know you’ve really made it in business when you’re contemplating buying a piece of commercial real estate to call your own.
This is generally a great move for small businesses that can afford the permanent expenses of buildings and upkeep, and that allows management or ownership to send a message to customers that says, “We’re going to be here for you for a very long time.” Securing a commercial real estate loan, however, isn’t as simple as a home mortgage or a car loan was for the personal side of your ledger.
Setting Your Business Up for Success
When you’re looking for a commercial real estate loan, it’s really a good idea to prepare months or even years ahead of time. Before you so much as call the first mortgage lender, you’ll want to get your business in good working order.
The United States Small Business Administration suggests starting with your assets and expenses. Your bookkeeping is vital to demonstrate that you have the ability to pay your new mortgage without having to dip into personal funds. If you’ve been guilty of this practice in the past, now is might be the time to stop using money from your individual bank account to fund business activities. If your business needs a loan, you can make it one, but do it formally and document everything.
While you’re working on that, ensure that all your business licenses and filings are up to date and get your company’s phone number listed in the 411 directory so an underwriter can easily verify your information. This move will pay dividends down the line.
Establishing Business Credit
Even with excellent cash flow, it may be difficult to convince a bank to give you a mortgage without business credit.
Since your business isn’t a person, it’s a bit more challenging to get it started with borrowing and repayment, but the first step is to incorporate and secure a Federal Tax Identification Number. This way, your company has a number that banks can run through the credit database that is completely distinct from your personal file.
In the beginning, it may be hard to find someone who will loan you money to help you establish good credit, but if you have an account with any one of many major brands or suppliers, you may be able to convince them to extend limited credit to your company. Buy what you were going to buy anyway and pay that invoice immediately to avoid any additional charges or falling into too much credit debt. After all, a high debt to income ratio is just as bad for your company as for you when it comes to borrowing money.
Once you have established credit enough to have a credit score, you can start talking to banks about what it’ll take to get a commercial real estate loan. Bank requirements can vary widely, so take notes as you go—and have cash ready. Most commercial real estate loans will expect you pitch in a substantial amount, as much as 25 percent, for a down payment.
It sounds like a lot of effort to just get a commercial real estate loan, but you have to realize what building ownership means for a company. It means you weren’t one of the many companies that failed before year five. It also means you have a permanent base of operations that your customers know they can rely on well into the future. It’s a space that’s well and truly yours, and one that’s worth putting some sweat into making a reality.