If you're a small-business owner who feels held hostage by the stringent or unequally enforced terms of the lease governing your store space, you may be wondering whether purchasing your own storefront is the only way out. While serving as your own landlord can give you quite a bit more freedom to run your store as you wish, it can also be an expensive prospect if you're financing a mortgage and paying for repairs out of pocket. Read on to learn more about some of your commercial lending options if you're anxious to transition from lessee to owner.
What are your options for financing commercial real estate?
For businesses that have been established for more than a few years and have positive cash flow, qualifying for a traditional commercial mortgage shouldn't be much of a problem. These mortgages tend to carry slightly higher interest rates than home mortgages simply due to the greater risk involved. Because business owners are usually somewhat insulated from personal liability for business debts, collecting a deficiency judgment from a business after its building is foreclosed upon is much more difficult than collecting the same judgment from an indebted homeowner.
For newer businesses or those who have had a few lean years during the recent recession, qualifying for a traditional commercial mortgage can be tougher. You may want to look at some alternatives, like hard-money lending or even obtaining a business partner with retail space. Hard-money lending is a type of loan that uses the physical asset as security, allowing the lender to foreclose outside the judicial process if you stop making payments. This creates less risk for the lender and can therefore allow you to obtain financing on your new building without risking a deficiency judgment (since the amount lent is usually less than the building is worth) or paying exorbitant interest rates.
Where should you begin when looking for your own financing options?
If you're not sure where to begin on this journey, you may want to first talk to a commercial mortgage lender. Even if you don't qualify for the best rates, your lender may be able to offer some product that will allow you to purchase a new building, and going the traditional route is generally the most streamlined option when it comes to taking out a real-estate loan.
If you're unable to qualify for commercial real-estate financing through a bank or credit union, you may want to look up the business profiles of some hard-money lenders or venture capitalists in your nearest large city. If you already have a storefront in mind, you may be able to enter into purchase discussions with an entity that has the money to back your venture.