Commercial real estate financing is the first step when you want to pay your company’s rent to yourself instead of a landlord. By purchasing commercial properties, you can use your rent money to build equity for the company instead of for someone else’s. Still, those properties can often be expensive and commercial mortgages can be challenging to secure for small and medium-sized companies. Knowing some of the basics about the process can help show you where to start.
Concerning financing, commercial properties come in two primary types, owner-occupied and investment/income-producing. These categories will determine which types of funding and lenders you can use to purchase, renovate or improve the property. Your property is considered owner-occupied if your company resides in at least fifty-one percent of the real estate, a prerequisite for many loan programs. This classification means you can own property more extensive than your current needs, rent out the excess space, and still be considered owner-occupied.
Financing for commercial real estate comes in multiple forms, usually grouped under the term mortgage. These types generally refer to how you use the funds, such as mortgage refinancing loans, fix-and-flip financing, or purchase funding. Commercial property funding includes hard money, construction and bridge loans, and cash-out financing. These financing types can be used in conjunction; sometimes, one loan can be classified as more than one. For instance, if you take out a hard money loan to cover the gap between your first mortgage payment and your first profits in the new location, you have a hard-money bridge loan.
In commercial financing, the major lenders include banks, investors, and private or institutional lenders. You can also apply for loan programs through the Small Business Administration or the United States Department of Agriculture. However, it is essential to remember that the government does not finance these loan programs. Instead, the government will partially back the bank loans you received to reduce the risk to the lender and improve your chances of approval.
Commercial real estate can be an excellent investment for your business, especially if you are currently paying rent to a landlord. By owning your company’s property, you can put your monthly rent payment towards your equity and may even be able to rent out portions of the lot to others. This is an investment in your company’s future because it increases your future lending power, gives you room to grow, and can even lower your monthly payments.