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Buying a building is a huge step for a small business that can prove extremely valuable. Ownership can build long-term equity, provide stability, and reduce overhead costs.
If you are a small business weighing the pros and cons of property ownership, these 10 questions to ask yourself before buying a building can offer clarity.
1. Is Your Business Profitable and Stable?
It is important for you to ask yourself this question before you decide to buy a building because the Small Business Administration (SBA) requires businesses seeking SBA loans to be for-profit. Lenders want to see that your business has steady income and cash flow. This demonstrates that you have the ability to repay the loan, which makes the loan less risky for the lender.
2. Is Your Credit Good Enough?
Your credit matters a lot when applying for an SBA loan for a building purchase. When evaluating who is a good candidate to buy a building, lenders look for:
- A personal credit score of 700 or higher
- A business credit score that demonstrates responsible borrowing
- No recent bankruptcies, foreclosures, or delinquencies
- How much debt you have, and how you have handled it
Lenders consider both your personal and business credit history.
3. Can You Afford To Make This Purchase?
Property ownership is a great thing—when you can afford it. You will need sufficient funds for a down payment, which is typically 10%. In some circumstances, we can get you a loan with zero down.
Your business should also be able to comfortably support the monthly loan payment and any other expenses that come with owning a building, such as taxes and maintenance.
4. Will Your Business Occupy at Least 51% of the Building?
SBA loans require that the business physically uses at least 51% of the space for its own operations. This is a requirement to be eligible for the loan.
5. Do You Plan To Lease Part of the Space?
As long as you meet the 51% occupancy rule, you may lease the remaining part of the building. In fact, doing this can help offset costs.
6. Should You Get an SBA Loan or a Conventional Bank Loan?
SBA loans are an attractive financing option for many small businesses because they typically require lower down payments and offer longer repayment terms and competitive interest rates. Conventional loans may be quicker to get or more flexible to use, but they can come with higher monthly payments.
7. How Does Buying Compare to Your Current Rent?
Buying a building often means a fixed monthly payment rather than rent that increases each year. Plus, with SBA’s long loan terms, your mortgage payment could be similar or even lower than what you are currently paying.
8. How Long Are Repayment Periods for Real Estate Purchase?
SBA 504 loans can offer repayment periods up to 30 years. A longer repayment period often means a lower, more manageable monthly payment compared to the payments shorter-term loans require.
9. What Are the Benefits of Working With an SBA Consultant?
Applying for an SBA loan can be a complicated process, with strict rules, ample paperwork, and various tasks to complete.
Working with an SBA loan consultant offers many benefits, including:
- Saving you time
- Helping you avoid costly or time-consuming mistakes
- Improving chances of approval and favorable terms
- Incurring no charge unless you close on a loan
10. How Do You Get Started Working With BFG?
The final question to consider before deciding whether to purchase a building is how to begin the process. At Business Funding Group LLC (BFG), we are a team of loan packaging experts who specialize in helping small businesses get SBA loans to grow their enterprises.
To get started, fill out our fast and simple application that only takes five minutes. It will provide us with information about which type of financing you need, the loan amount you are looking for, and more about you and your business.
After Asking Yourself These 10 Questions, Reach Out to BFG
These 10 questions to ask yourself before buying a building are a great place to start if you are not sure whether you are ready to purchase or want to keep renting.
Our team is here to help you get the financing you need for your business. We are uniquely positioned to answer your questions and walk you through the often-complicated process of applying for an SBA loan.
Contact us for a no-obligation call to learn how SBA financing could make a real estate purchase a reality for your business.