Negosentro.com | Ultimate Checklist for Financing Your Office Building | As your company grows, its needs grow along with it. Some of the requirements that increase over time with the continued development of a company are the number of employees, the equipment used, and of course, the office space.
However, financing an office building that’s big enough to accommodate your business’ growing needs can be difficult. After all, this is not something you can do as an out-of-pocket expense as this can deplete your company’s finances, even if your business is doing well.
Luckily, Clopton Capital offers many options for business owners everywhere to help fund their ever-expanding business. Check out this guide to discover everything you need to know to finance the next step for your business.
Sources for Office Building Financing
When it comes to financing your office building, the best way is to get a commercial real estate loan or a business loan. While they’re similar in the sense that they’re meant for business owners who are looking for ways to finance their office building, they also have differences among them.
Here are the two common sources for financing and a short description of each:
- Commercial Real Estate Loan
A commercial real estate loan is a type of loan for business owners who want to purchase, rehabilitate, or construct a commercial property. This type of loan is best for companies who want to buy the commercial property as opposed to leasing it.
Types of commercial real estate loans include:
- SBA 7(a) Loan
- CDC/ SBA 504 Loan
- Traditional Mortgage
- Commercial Bridge Loan
- Commercial Hard Money Loan
- Business Loans
If you need funding for other aspects of your business, not just your office space expansion, then a business loan would do. With a business loan, you can lease an office building and fund the other necessities such as additional equipment and other items to help your business grow further.
As with commercial real estate loans, there are different lenders for business loans such as:
- Business Term Loan
- SBA Loans
- Business Line of Credit
- Merchant Cash Advance
- Equipment Financing
- Invoice Factoring
When it comes to which loan to get, you will first need to evaluate the needs of your business and whether or not you’re buying a property for it. As mentioned, a commercial real estate loan is ideal if you want to buy a commercial property. On the other hand, a business loan is ideal if you need to fund other aspects of your business as well.
How to Get a Commercial Real Estate Loan
First, let’s take a look at what you need in order to get a commercial real estate loan. As this type of loan is ideal for purchasing a commercial property, getting one can be difficult as the conditions for approval differ among the various lenders.
If you’re applying for a commercial real estate loan to finance your office building purchase, then here are some of the things you need to prepare for your application:
- Tax returns of your business of up to 5 years
- Projected cash flows for the loan’s duration
- All of your financial records from the last 5 years or since your business’ start
- Credit reports of the owners and the business itself
- 3rd-party appraisal of your property
- State certification as an LLE (limited liability entity) or corporation
- A comprehensive business plan
These are the common requirements that lenders such as banks will need to thoroughly check out whether you qualify for the loan or not. If opting for hard money lenders, they will focus more on the current, as well as projected, value of the property you want to buy. However, these loans have fewer requirements but higher interest rates.
When it comes to commercial property loans, it can be difficult for borrowers with poor credit history and new businesses to secure it at a lower interest rate. Some ways you can overcome challenges like a reduction of the maximum LTV your property can offer are:
- Improving your credit score by paying off existing debt
- Securing community grants
- Applying for an SBA loan (whether 504 or 7a)
- Add a stable investor or partner on the agreement
- Adding additional collateral
- Paying a larger downpayment
- Choosing a less expensive property
How to Get a Business Loan
As mentioned, a business loan is ideal if you need funding for other aspects of your business such as the upgrading of equipment, hiring more employees, adding inventory, etc.
With a business loan, you’re not limited to using the funding for commercial properties which can also be beneficial if you’re expanding your business. Like with any loan, you will need to meet certain qualifications to apply for one.
Here are some of the qualifications you will need to be eligible for a business loan:
- A good credit score
- Being in business for at least a year
- A total net operating income that’s at least 1.25 more than the total expenses
- Potential collateral
- Adequate annual revenue (often around $50,000 to $150,000)
If you’re eligible to apply for a business loan, then you can prepare the following documents to bring together with your application:
- Up-to-date financial records
- Your income statements and balance sheets
- Your tax returns
- Your bank accounts
- Projection plans of your business
When your business is doing well, it can be difficult to keep up with the increasing demands of its development such as the need for a larger workspace. Although financing an office building can be an expensive venture, there are many alternative sources of funding to help you meet the demands of your growing business.
While applying for loans can be a daunting task, approval of your application is not unbelievable if you have all the required qualifications and documents. Having the necessary qualifications for eligibility and documents ready at the time of your application will help increase the chance of you getting the financing you need for your office building.
Getting financing for your office building is not just a way to expand your business, but it’s also an investment in its continued growth and development.