By Craig Christenson, SVP, Commercial Banking Team Lead; 
Casey Moltrum, SVP, Commercial Banking Team Lead;
Shanna Reichenberger, SVP, Commercial Banking Team Lead;
Justo Fuentes, VP, Commercial Relationship Manager, and
Ben Firman, VP, Commercial Relationship Manager

The continuing low interest rate environment, and an economy experiencing a significant rebound, makes this a good time to discuss one of the most important considerations every business owner must make: whether to buy their space, continue to lease, or build their own facility.

Obviously, ownership of one’s building or real estate creates significant advantages over paying someone else rent. When you are the landlord (paying rent to yourself), you are building wealth that creates long-term benefit to you and your dependents. As such, I often look at leasing as a necessary and somewhat short-term option for clients who are just starting out and don’t have the necessary capital to buy.

Yet, today’s environment may be the perfect time for a business who is currently leasing to make the plunge into ownership. There are several strong options for people in such circumstances to consider. As I often advise, get together with your team of trusted advisors (banker, CPA, attorney) and begin mapping out a strategy now.

One key program that can help convert renters into buyers is the Small Business Administration (SBA) 504 program. This loan program provides long-term, fixed rate financing for major fixed assets that promote business growth and job creation. Specifically, the 504 program exists for businesses to: purchase an existing office or factory; build a new facility; or purchase long-term machinery and equipment. What is important for businesses is that the 504 program may allow a business owner to buy or build with a down payment of only 10 percent instead of the usual 20 -25 percent required for a conventional loan. Plus, the SBA loan term can be up to 25 years.

By accessing this program, a businessperson can move toward ownership without diminishing the cash needed to operate your existing business in order to scrape together the down payment.

Another aspect of today’s market that a business owner should consider is encapsulated in that old phrase: There’s no place like home. What I mean is that looking to buy the building where you currently reside may make the most sense for you. If your current address accommodates all your needs, then you won’t have to go looking for another facility. Further, if you can purchase your current building and occupy 51 percent or more of the entire facility, then you can rent out unused spaces to tenants and add rental income to your cash flow., along with having space for future growth.

A big consideration is to work with your accountant and banker to get pre-approved before making an offer on the building and figuring out the best type of loan for your needs. For many, this could be a conventional mortgage, the aforementioned SBA 504 loan, or other options. At Columbia Bank, we are working with many clients who are apprehensive about the current loan environment because their 2020 was lackluster due to COVID-19. While that perspective is totally understandable, in reality, we as lenders are also interested in the years prior to the pandemic as a benchmark for how their business was doing during more conventional circumstances.

When moving through the process of buying a building, patience is going to be key. Given the start and stop nature of economic return due to COVID-19, appraisals are taking a long time, so you really need to get all your ducks in a row early and be prepared to wait for the process to move forward. 

At the end of the day, the environment for purchasing your own business space and/or your own building is trending in the right direction. With sound planning, solid counsel from your trusted advisors, and the right loan, many businesspeople can set themselves up for even better growth and success into the future by owning and controlling their own key assets.