SBA Loans and Business Condos for Small Business Real Estate

SBA Loans and Business Condos for Small Business Real Estate

In general, a small business owner is in business to produce a product or service and they don’t want to be in the business of managing commercial real estate. Nevertheless, there are circumstances where the small business owner might enjoy the benefits of real estate ownership. For instance, if the small business owner enjoys maintaining a property like their house, business office, or warehouse, they might also enjoy the long term benefits of owning their own commercial premises.

These benefits include market value appreciation, increased equity as they pay down their mortgage with funds that might have been otherwise allocated to rental expenses, and the ability to deduct interest paid as a business expense for tax purposes1. For this individual, it might make sense to own their business property rather than renting it. As long as the business activity justifies long term occupancy in the same type and size office and/or warehouse facility, owning it long term for the investment potential can be attractive.

There can be, however, barriers to small business real estate ownership with the costs and financing requirements for commercial property. Purchasing the asset requires a down payment and monthly payments. In many cases, office and warehouse facilities can be either too expensive to purchase or too expensive to maintain when the small business owner has a growing business with demands for working capital. This is where the concept of the business condo grew to accommodate a need. Because business condos share infrastructure such as parking lots, landscaping, walls, and security services, they present a more affordable option for some small business owners. Not only is the initial purchase price less than a similar, stand-alone building on independent property, but the ongoing maintenance is shared, making ownership easier and more affordable for the long term.

Having solved the price point problem for small business owners to be able to afford real estate ownership, there remains one additional resource for making the purchase more affordable. Small business, owner-occupied real estate is eligible for SBA government-guaranteed financing with lower down payments, longer repayment terms, and easier qualifying criteria than conventional bank loans. In many cases, the small business borrower can purchase business condos with as little as 10% down! Since the term is for 25 years, the small business is assured of a monthly payment which is often lower than what they were paying for rent in the past or expecting to pay for rent in the future!

While the benefits of owning your own commercial premises are certainly attractive, a business owner should consult his accountant, financial advisor, commercial banker, or credit union manager before making the investment. They can help you analyze your financial portfolio and business plan to determine if investing in real estate is the right move for your business.

1 We do not provide legal or tax advice. Please consult your legal or tax advisor in regards to your own situation.


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