Commercial real estate is probably the most significant financial transactions for a small business owner. Purchasing commercial property is usually the most costly ventures a company will embark on.
To purchase a property, there are several things to take into account besides the location.? The commercial property you pick should be fitted for your business long term sustainability and not be a financial burden.? To do that, you can simply calculate your property expense (monthly mortgage payment, tax, insurance and maintenance) and the number should be at lease similar to what you pay for your rent. ?Some may not agree but if you can afford and are comfortable with purchasing a property that is larger than what you need, you should do it.? You can simply rent the space you don?t need and get extra cash to help with mortgage payments. Plus you can use the space later on if you need to expand.? It?s recommended that you use at lease 51% of the property to be qualified as owner user.??
Most business owners cannot purchase a property with cash and even if you have the cash, you should still finance the property as you can use your cash for your business or purchase a bigger/better property.? Besides, with interest rates so low, the loans are practically free considering the tax advantages. However, borrowers that are trying to finance their property purchase, soon experience the headaches that come with obtaining a commercial loan.
On the bright side, owning your real estate property and using your business income to pay for it, exceeds the disadvantages like paying rent and in most cases results in larger return on investment due to appreciation of the property and tax advantages of owning a real estate on your balance sheet. ?For some business owners, the cost of owning their owner user commercial property is less than leasing.?
Objectives of Commercial Real Estate Loans:
First of all, almost all lenders look at your business and use of the property for your business first.? They usually don?t finance businesses that are illegal, immoral or indecent in eyes of general public.? For example, most banks and non bank lenders would not consider liquor stores, gentleman clubs, and adult entertainment and so on.? For these types of businesses, owners should look at un conventional lenders or hard money lenders.
Now this is very important for all borrowers to understand.? Banks and lenders in general are not into real estate business, have no intention of owning your property.? Sure they use your property as collateral but they are only interested in getting their monthly payments on time and they do not want your property should you default on the loan.
However, often times, banks and lenders take over the commercial property through foreclosure process as last option.? When they do, their intention is to get rid of the property as fast and as much as possible.? That?s why, banks are very particular about the types of property they lend against and almost all of them like multi use commercial properties. Special purpose or single use properties like gas stations, self storage or assisted living properties are not the type of properties that can be quickly sold. Furthermore they require ?business operators? to run these types of properties or businesses so when the bank takes over these commercial properties, they usually shut down the business.? On the other hand, office buildings, warehouses and industrial buildings can be easily managed by professional property managers.? The units can be leased to any business and banks can easily sell these properties.? Just keep this in mind when are shopping for commercial loan. The rates for the special purpose loans are higher and usually financed through SBA loans.?
Additionally, business owners using the property for operation of their business will have a better chance of getting financing. They get better rates and terms and can leverage more since the risk is less for the banks.? The underwriter considers the business income and cash flow to qualify borrowers for the loan.
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Source: http://www.citycapitalfinance.com/blog/overview-of-commercial-loan
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