Commercial Financing
Now that you have decided to purchase a commercial property you need to decide what type of financing you might need to purchase the property. Here are some choices that may be available to you:
SBA financing – These are loans that are guaranteed or direct loans from the Small Business Administration. The advantages with these loans are that they usually offer low interest rates, lower down payment (10% in some cases) and are fully amortizing. The disadvantages to these loans are that they require quite a bit of documentation and they usually have prepayment penalties if you sell the property or pay off the loan earlier than expected.
Commercial loans – These loans are loans that are funded by the lending institution and are held in the lending institutions loan portfolio. These loans can have maturities as long as twenty years, but most of the loans have maturities of 10 years or less. These loans are usually amortized over 15-20 years but have a balloon payment at maturity. You need to be aware that you might need to pay off the loan at maturity even though there is remaining time on the amortization. These interest rates on these loans are fixed for the term or have adjustment periods during the loan that adjusts the interest rate to the current market. These loans are typically relationship driven meaning the lending institution wants to have the business deposit accounts so that they can earn money from your deposit accounts. The good news is that many times if you give the lender your deposit accounts, they will potentially waive some fees on the loan such as prepayment penalties, loan origination fees, etc.
Whichever way you decide to go I recommend that you reach out and visit with several lenders to talk to them and ask questions on how things work. This process will allow you to get comfortable with the lender that you choose that will develop into a business partnership in the coming years. Who knows your business may grow and you may need to expand and having a good partnership with your lender will make the next steps easier.