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. Most likely its the the largest facet of small business finance that their company will face.

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. There are always ways to ge around putting less down, such as offering other collateral to increase the total. The most common ways of doing this are to offer up business assets or a 2nd mortgage on the owners residence. 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 final 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.

As far as rates go, you can typically qualify for lower rates than your typical business startup loan. Since the note will be secured by a piece of physical real estate, banks tend to be more aggressive with rates. 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. The most common terms are 5 year fixed rate balloon with a 20 year amortization. In recent years as competition has stiffened, its not uncommon to see up to 10 year fixed rates and up to 25 year amortization. Competition is a very good thing for borrowers. Now, the way loans are priced is off the treasury rate. Typically, banks will offer between 2%-3% above the appropriate treasury rate. So, as an example, if you are seeking a 7 year loan with a 25 year amortization, most banks will price that somewhere between 2-3% above the 7 year treasury.

Ok, once you're gotten the initial scoop from your local lending institution, you need to get ready to submit a loan application. 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. They'll also require a personal guarantee of the owner of the company, so they will look for some statement of personal net worth as well as tax returns from all owners. 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. Obtaining a commercial mortgage, while time consuming, can also be the easiest to get. 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 ask the right questions and come prepared, then it can be a very easy process for your company and you can be in your new building in no time.