If you could cut costs, increase equity and continue growing your business, then wouldn’t you? Of course! For business owners looking to maximize opportunity and minimize inefficiency – and that should be all business owners – the best place to start is with your rent.

Lease vs Buy Commercial Real Estate

Yes, leasing is a safe option with minimal barriers to entry, but it may also be wasteful. If you can afford to make a rent payment now then you can definitely afford to make a mortgage payment. Obtaining business real estate financing may seem daunting and, yes, as with any real estate purchase a down payment will be required; but owning commercial real estate is much more affordable than you think. Links Financial is here to show you exactly that and to help you take your company to the next level.

There are times when it doesn’t make sense to put your available capital towards purchasing commercial real estate (see below for more detail), but in most cases the best scenario is for a business owner to buy the real estate on which his or her company is operating. The benefits of owning your own office building, store front or industrial space go beyond efficiency and stability for the company. It also creates additional income and opens up tax advantages for you – the business owner. As David Cameron, manager of business banking at City National Bank, put it, “buying commercial real estate is an excellent way for small business owners to create an independent income stream for themselves and accumulate wealth apart from their business operations.”

Business Real Estate Financing Options

Owner-occupied real estate is like candy to lenders. It is considered the lowest risk loan because of the existing track record of lease payments and in-house cash flow that both serve as solid evidence that payments will be fulfilled. Because of the nature of owner-occupied real estate, there are several aggressive financing programs available. Links Financial can help you find and secure the one that is best for you. The two most common types of business real estate financing options are:

• Conventional loans, which require a down payment of up to 25%.
• SBA 504 loans, which require only 10% down and offer below-market interest rates but also come with additional fees.

Benefits of Owning You Own Office Space or Commercial Property

If you are planning to be in business at your current location for a long time, do not foresee significant changes in the operation of your business, and currently reside in a space that can accommodate the company’s growth plans for next 5-10 years, you should consider purchasing the space. Becoming your company’s landlord gives you much more control over operating expenses and rental rates – keeping costs lower and less volatile. Additionally, any improvements to the property belong to the business owner rather than a third-party landlord and create equity in the property.

It is often recommended that business owners purchase the property using an LLC created specifically for owning the piece of commercial real estate. The business owner will then lease the space to the company through the LLC. This structure enables the company to continue deducting lease payments under its expenses while the LLC can deduct the interest and any expense from the property itself. The owner will also get tax advantages from owning the property. Lastly, the property will not be a liability to the company since it is still leasing from the LLC.

Now your company is still paying the same as when the property was leased (no change in monthly cash flow), but you are reaping additional benefits. As the acting landlord, you will also have the ability to sell or lease the property to another tenant at any time or lease a portion of the space out to another tenant – giving you another source of income – if the size allows for it.

When It Doesn’t Make Sense To Purchase Commercial Property For Your Business

On the contrary, if you foresee rapid growth and cannot, or are not willing to, finance a down payment then now is not the time to consider purchasing your company’s real estate.

Growth spurts are a great thing! But you need capital to fuel them. Whether it is going toward research and development or making need renovations and tech upgrades, the last place your available capital should be is tied up in a down payment. In this case, grow first and buy later. Likewise, if your staff and service offerings are expanding rapidly it may be best to wait to purchase commercial real estate until the company hits its next plateau. You wouldn’t want to outgrow a space shortly after purchasing it unless you plan (and are financially able) to lease your current space to new tenants and buy a larger space for your own business.

No matter which situation you find yourself in, Links Financial can help you find the appropriate commercial real estate loans or other sources of capital to finance your project.