Making Your Business’ First Commercial Property Purchase A Success
Whether you are just starting your small business or looking to expand it, there comes a time where you are faced with the question: should I purchase a commercial property for my business? Estimates from The Small Business Administration say that small businesses in American occupy between 30-50 percent of commercial space in America. While it can be a great investment for your business, there is a lot to consider when buying your first business property. From securing the right financing for your purchases to deciding whether owning commercial property aligns with your business’ strategic and financial goals, here’s what you need to think about before buying your first commercial property as a business owner.
Is It the Right Time For Your Business To Buy?
One of the most important decisions a small business must make is whether it is the right move for the business to purchase a commercial property instead of renting or having a long-term lease. The decision of buying or leasing a business property should consider the economic benefits of each option along with other non-financial benefits to the business. For instance, small business owners may decide it is time to purchase a commercial property because they have greater control as an owner instead of a leaser.
However, in the long-term leasing may work out to be more suitable for your business cash flow since it requires less initial cash outlay. In this case, a good business cash flow forecast can help you see the impact lease or mortgage payments can have on your business’ financial position. Do you have enough reserves to cover a downpayment? If not, is your business’s financial standing in the best shape to get financing? How would owning a commercial property impact your revenue flow and tax obligations as a business? Finally, does owning a piece of commercial property align with your business plans?
Is Your Financing Lined Up?
There is also the issue of having the right financing in place for your commercial property purchase. While some small businesses may rely on built-up retained earnings for a deposit and a commercial mortgage, there are also federal loans available through the Small Business Administration’s 504 Loan Program. Business owners can also rely on portfolio or property development finance to fund their commercial property purchases. It is always recommended that businesses outline their finances before looking for a property. This helps them to narrow down their budget and their property goals. If you are relying on internal finance, looking at your budget and cash projections is also recommended. Additional costs like mortgage repayments, regular maintenance payments, and the cost of securing commercial insurance should also be included when doing scenario planning to ensure your business budget can handle the increased costs of owning a property.
Do You Have The Right Team In Place For The Purchase?
It is also important to have the right people in place when buying your first commercial property. Assembling a well informed and all-round team ensures you and your business get the best deal for your investment and is aware of all the legal or financial regulations you need to adhere to.
You will need a commercial real estate broker, real estate attorney, and certified public accountant to advise on any tax regulations you need to adhere to. For instance, commercial property tax rates vary by state. In New York, the 2020/21 commercial tax rates are 12.267 percent for Class 2 and 10.694 percent for Class 4 or nonresidential commercial businesses. Meanwhile, a commercial property lawyer will help you navigate the legal process of buying your first business property and represent you in legal disputes if needed.
There are many payoffs to owning a commercial property in your business. However, it is a formidable investment and one that should be approached with ample planning. Make sure your business financials and financing options are clear and that you have the best team in place before moving forward on the purchase. Otherwise, you may find your business missing out on the point of becoming a commercial property owner in the first place.