For many small business owners, investing in commercial real estate seems like a logical next step on the path of business ownership. What most hopeful proprietors need to actually take this next step is financing. Whether seeking out a loan or trying to raise the money in an unconventional way, there are choices available to make owning your own commercial property more than just a future goal.
The Traditional Route: Taking Out a Loan
Taking out a loan to finance the purchase of a commercial property is probably the most common route business owners take. You can either try for an SBA (Small Business Association) loan or a conventional loan from a bank. A lot of banks prefer to work with SBA loans, but if you have an established relationship with a lender, they may consider financing real estate for your company an investment. There are some things to consider when opting to apply for a loan. In most cases, whether you’re going for SBA or conventional, the bank will want a down payment. Good credit and proven profits are also important factors lenders consider before approving real estate loans.
The Less Traditional Routes: Seller Financing and Third-Party Financing
Coming up with financing for your commercial real estate purchase isn’t limited to applying for endless loans, hoping some bank will finally say yes. While bank loans are more common, it is possible to get a seller or third-party financing. Seller financing is when the individual or the company selling the property also provides financing for the purchase. This can be an especially good option if there is a particular piece of property you are interested in, but a bank will not fund the loan. Even if the building or land listing doesn’t say that seller financing is available, it couldn’t hurt to ask.
Third party financing also leaves out the banker middle man, but instead of getting financing from the seller, you are raising money from third party sources. This is a much less common scenario for small business owners, but you may have some untapped resources in the form of loans from friends and family. If your great uncle or favorite aunt has money they’re willing to lend, it could be an opportunity for the both of you. They’ll earn a return on their investment in the form of interest and you’ll have the business real estate you’ve been needing.
When it comes to purchasing commercial real estate, business owners aren’t limited to one financing option. Whether you shop for a loan or seek out creative sources of funding, there is more than one way to get your business the property it needs.