At some point in most companies history, the goal is to purchase a facility instead of paying rent to a landlord. In a lot of instances, the reason to purchase a building is simply the company has outgrown its space and they need to decide if they should continue leasing a larger space or purchase a building as a long term investment. As much of a milestone as this is, it can also be a stressful time for a company as there are so many options available and so many different things to learn in a short period of time. In many cases, this is the biggest foray into small business financing that the company will undertake, so it's not unusual that there would be some jitters.

Most likely, you will need a loan to make this possible. If you are going to occupy more than 50% of the building, banks consider this owner occupied and want you to put in 20% of the purchase price. If you need to put less down, then you can get creative by either offering up additional collateral, such as your home or other business assets. Another popular option is an SBA 504 loan program. This is done in cooperation with a CDC and involves the bank lending 50% of the purchase price, the CDC issuing a bond for 40%,and the owner putting in 10%. This is a good option and there are other advantages, but as with any government entity, you are going to have more costs and more paperwork.

The good thing about real estate loans, you can generally qualify for a lower rate than your run of the mill business startup loan. Real estate is still considered very strong collateral, in comparison to accounts receivable and inventory, and this all plays into what rate the bank is willing to offer you. Commercial loans differ from residential in that the rates are not locked for as long as residential loans. With a residential mortgage, banks sell those to secondary financing companies immediately after funding. With a commercial loan, they stay on the books so they are not as willing to offer a long term rate. What you will normally see is a five year fixed rate and a twenty year amortization, which simply means your rate is locked for only 5 years but your payment is as if you have a 20 year loan. As more and more banks enter the market, it has forced lending institutions to offer more flexible rates to its commercial clients. This includes fixed rates as long as 10 years and amortization as long as 25 years. Competition is a very good thing for borrowers. Rates are typically based off of the corresponding treasury rate. Typically it's anywhere from 175 basis points to 300 basis points. For example, lets say you are seeking a 5 year loan/20 year amortization for your commercial building purchase. Most banks will price that off of the 5 year treasury, so if that rate is 5% then you could expect a rate from 6.75%-8.00%.

After you've had initial talks with the bank, you'll need to get prepared for loan approval. Most banks will seek 2-3 years of financial statements or tax returns on the company so they can get a history of whether the business can support the new debt payments. Also, they will likely require a personal guarantee and ask for personal tax returns and a personal financial statement from the owners of the company. While you're in there, they will probably also try to cross-sell you some other services, such as merchant services, a payroll services, or wealth management.

All in all, the entire process can be pretty easy to work with. When compared to other types of business loans, commercial mortgages rank on the easier side due to the strength of the collateral. You have strong collateral in the building and you can also can justify the cost because you are eliminating an expense (rent) and just replacing it with the mortgage payment. If you do your homework and come prepared, it can be a very easy and pleasant experience for you and your company.