While many home-based business owners enjoy low start-up costs and minimal risk, they have a much harder time catering to expansion. If you’re looking to hire staff or hold regular client meetings, it may be time to research a new location, update your permits, and re-evaluate your business needs. When moving to a commercial space, financing is usually the biggest factor and can be a major barrier if you lack the necessary resources. Fortunately, there are great commercial real estate financing options available to help you grow your business in a new office without having to front money you don’t have.
Commercial real estate loans do not operate like a residential mortgage. They are more complex because they generally pose a higher risk for lenders. Your loan-to-value ratio is not as flexible on commercial property. Unlike the residential sector, there are no VA, FHA, or other government-backed financing options. The property itself is a lender’s primary source of insurance.
Fortunately, today’s lenders are offering more flexible opportunities for borrowers to quality for commercial real estate financing without a hefty down payment. These loan terms are also shorter than residential mortgages, and most banks incorporate a balloon payment into your agreement. This means you make fixed payments on a typical term mortgage for the first several years of your loan. Once you’ve secured enough equity and profit, you pay off the entire balance with a balloon payment. Most fixed-rate periods are between 3 to 10 years. You also have the option to apply for a second loan to finance your down payment. If you’re credit is good and you don’t mind a higher interest rate, this is not a bad option. There are also private down payment assistance programs that cater to new businesses looking to open up commercial space.
Securing a financing option for commercial space is an easy way to quickly expand your operation. If you run a retail business, you are only as big as your space permits, and residential homes are not zoned for commercial activity. Moreover, businesses typically grow as they add more personnel, and it’s difficult to manage a large staff out of you house. For manufactures, you can even obtain equipment financing to acquire the tools you need to produce your products at a much higher rate.
When considering commercial real estate financing, be prepared with the proper credit information. This includes tax returns, financial ratios, and three to five years of financial statements. For most owners, choosing to move out of their home office is an inevitable and necessary step toward growth and success.