There comes a time in every business’s life when you must decide—lease or own? The best choice between these two options varies from business to business. For a business just starting out, leasing may be the best option. For a business looking to increase its assets, create passive income, or get a nice tax break, owning may be the best option. If your business is considering a commercial real estate loan in Maryland, North Carolina, or Virginia, 504 Capital can help.
Things to Consider When Buying a Commercial Space
There are various advantages and disadvantages to purchasing a commercial real estate space. The main advantage of purchasing a commercial space is the appreciation of that asset. Overtime, as long as you maintain it properly, your property’s value will increase. This makes it an asset to your business. It also provides you with control over the space, a tax break, and the ability to obtain rental income should you choose to rent out part of your property.
In contrast, the downsides of purchasing a commercial property include the initial investment cost, increase in liability, difficulty qualifying for financing, and loss of capital. Purchasing property requires a down payment which can take up a lot of capital you had saved for your business. Similarly, should the property depreciate in value, you will lose money on the investment. In addition, owning a commercial property requires a lot of upkeep and maintenance that increases your liabilities. And even if you choose to finance the property, it can be difficult to find a lender who will give you a loan.
Things to Consider When Leasing a Commercial Space
On the other hand, instead of buying a commercial space, you can lease from another company. While leasing provides you with a fixed monthly operating expense, it also prevents you from having control over the space. If you want to make changes to the property, you are unable to without approval from the owners. Similarly, while you will have access to more capital, you also may be subject to high rent. Finally, while you do have flexibility and the ability to leave the space at any time, you also won’t be able to collect passive income or benefit from the appreciation of the property.
Making the Decision to Lease or Buy
Choosing to lease or purchase a commercial property is a big decision that many businesses are eventually faced with. In the early stages of your business, it may be a good idea to lease space until you have a good amount of capital to spend on a space. Waiting also ensures that your business can provide a steady stream of income that takes care of operating expenses. However, once your business is pretty well-established, you may want to consider purchasing a commercial space.
Purchasing a commercial space is ideal for companies looking to increase their assets, create a secondary stream of income, or control the property they work at. If you are considering purchasing property for your business, why not consider using a 504 commercial real estate loan?
Using a 504 Commercial Real Estate Loan in Virginia, Maryland, or North Carolina
The Small Business Administration (SBA) partners with Certified Development Corporations (CDCs) throughout the United States to provide small business loans. An SBA 504 loan is one of these loan options that is available to use for commercial real estate. With an SBA 504 commercial real estate loan in Virginia you can purchase property with better terms than a traditional commercial loan.
Traditional financing options can require 20-40% down payment for a property. A 504 CDC loan offers small businesses a 10% down payment rate on commercial properties. Similarly, traditional commercial loans offer loan periods of 10 years; in contrast, an SBA 504 loan can offer up to a 25 year loan period. Plus, if you are considering renting out a portion of your new commercial space, you can do that with an SBA CDC loan! You just have to utilize 51% of the building at the move-in date and for the life of the loan.
504 Capital—An SBA CDC in Virginia, Maryland, and North Carolina
504 Capital serves the VA, MD, and NC areas and offers competitive financing options for your business. Our experts work with a variety of businesses and can help you through the application and financing process. We can even expedite the process if you are looking to purchase a property soon. Ready to learn more? Visit our website to see the 504 loan qualifications.
Contact us today to get the process started.