As your business grows and income becomes more stable, you may begin to consider the value of investing in your own piece of commercial real estate.
Commercial real estate loans can be tricky to secure, though, which is why so many small businesses continue to scan the paper for offices for rent instead of buildings for sale.
Don’t let the commercial real estate loan process scare you away from investing in your business’s future. Here are some of the most important things you need to know about commercial loans before you jump in feet first:
Commercial lenders expect a sizable down payment. Even if your home mortgage was financed with a five percent down payment, don’t expect that to carry over into commercial real estate. You’ll need a minimum of 10 percent, and many lenders will want to see you invest 20 to 25 percent of your own money in the new property.
You’ll need to prove your business income is solid. A professionally prepared profit and loss statement, as well as historical income documents, will be needed as part of the application process. The bank needs to know that you’re solvent and this is the best way to prove it. Some banks will also want to place a lien against your business assets to help secure part of the loan.
Your personal credit will figure in, too. It can be difficult to maintain stellar credit while starting a small business, but keeping the bills paid on time makes a huge difference in your approval. If your credit isn’t glistening, it may be difficult or impossible to secure a commercial loan, so work on that first.
Don’t forget to shop around. Commercial real estate loans are unlike any loan you’ve ever secured before. The policies, rates and requirements vary from bank to bank, so it’s a really good idea to shop around. If you can find a bank that works with businesses in your niche, they may be much more forgiving than a bank that’s unfamiliar with your business type.
Buying your own piece of commercial real estate means never having to worry about leases and landlords again, but it can be difficult to secure a commercial real estate loan in the first place. Be prepared to go through a long application process before the bank reaches any sort of decision and make sure to keep your business’s income documents up to date at all times. Owning your own building can be a great move for a small business, even though it can be a time-consuming one.