Long-Term Financing to Protect Your Commercial Real Estate Property
Updated: Feb 6
The current economic expansion, the longest in U.S. history, has been made possible in part by the growth of small businesses. Consumer confidence is high, interest rates are steady, and entrepreneurs are starting businesses at a record pace.
The State of the Economy
Despite growth, risks to the economy remain, including rising trade tensions and increased costs resulting from new tariffs. A strong majority of economists recently polled by Reuters now put the chances of a U.S. recession happening in the next two years at 40%. Dr. Lawrence Yum, chief economist of the National Association of Realtors, now forecasts current price appreciation in commercial real estate to end by 2020. If you own commercial real estate property where you operate your business, you can capitalize on this strong economy.
Interest Rates Hold Steady
With this increased chance of recession, the Federal Reserve is expected to hold the Federal Funds Rate at current levels until the end of next year at least. This is in sharp contrast to the nine rate increases since December 2015.
How Commercial Real Estate Loans Are Affected
While nobody can predict the future, you can certainly plan for it with the information at hand. The slowdown in economic growth could be a blip on the radar or it could be an indication of instability to come. One certainty, however, is for those commercial real estate loans with a near term maturity or balloon payment, refinance risk exists. If the economy, your industry, or business has suffered a slowdown when the current lender comes to refinance your loan, there is a very real chance the loan may not be approved. If the property value has fallen below the amount owed, the lender may be concerned that there is a risk of loan default.
One strategy that takes advantage of the strong economy and equity in your commercial property is to refinance into a fully amortizing loan and avoid the risk of balloon payments altogether.
The Benefits of a Commercial Real Estate Purchase or Refinance
If you own a small business, there are a number of ways to expand and strengthen your bottom line. With an infusion of low-cost funds, you can increase inventory, purchase equipment, shore up working capital and more.
There are small business growth strategies you might not have considered. Have you thought about purchasing the commercial real estate (CRE) where you run your business? Are you wondering if you can get a small business loan for real estate? If you already own the property you operate your business out of, a refinance can get you a better rate, a longer term or avoid a balloon payment.
1. Benefits of a Commercial Real Estate Purchase or Refinance Saving for the Future
According to the U.S. Small Business Administration, compared with their wage and salary counterparts, business owners are less likely to hold retirement assets compared with non-business owners. A commercial real estate purchase can increase your net worth and help you save for the future.
Secondary Income If you sub-lease space you’re not using for your company, you can secure a steady income stream. Even if you sell your business or move locations, you’ll still be able to lease the space, adding another source of income.
Tax Advantages There can be significant tax advantages when you own commercial property. Be sure to consult with an accountant or another professional to discuss specific taxes and other financial implications.
2. What to Consider Making the long-term investment in a building for your company is a big decision. Here are some things to consider before you look for a lender.
Maintenance Costs If you’ve been renting, repairs and other maintenance tasks are turned over to a landlord. Consider the costs involved when you own a property. When something needs repairs or upgrades, you’re on the hook.
Appreciation Does real estate value rise in your location? If not, are you prepared to take a loss if you sell? Research real estate in the area before you buy.
More Risk Property owners should consider everyone who will be on the property every day. According to the legal website NOLO, more people on the property means more of an opportunity for injuries or property damage that can cost you. Be sure to consult with an attorney to discuss potential legal implications.
3. Next Steps Once you’ve determined that a commercial real estate (CRE) purchase or refinance will work for you, it’s time to consider what type of loan is best.
If you’re looking for low-rates, long terms and excellent customer service to guide you through a commercial real estate loan process, Jennifer Lang Financial Services, LLC. can help you. We help facilitate SBA loans through our bank partners. Our SBA preferred bank lenders offer loans from $500,000 - $5 million with low interest rates and a repayment term of 25 years, meaning payments are very low.
To qualify, you must meet the following criteria:
At least 51% of the property's square footage must be occupied by, and used by, your business
2+ years in business
Business owners must be U.S. citizens or legal permanent residents
Business owners must have personal credit scores above 675
Cash flow to support loan payments
The estimated purchase price must be greater than $500,000
The rent replacement option requires a loan payment that does not exceed the current monthly lease expense and minimal down payment is required.
At Jennifer Lang Financial Services, LLC. we work with a number of preferred SBA lending banks. Our partners will match you with the most likely to fund your loan so they can help you get to a “yes” faster and easier. Additionally, dedicated Relationship Managers are on hand to guide you through the application process.
Do you need extra funds for your small business? An SBA loan is the best bet for small businesses with low rates, long terms and low monthly payments. Discover in about five minutes if you’re qualified to apply for an SBA loan with one of our bank partners.