Business Property Ownership vs. Renting? The Commercial Owners’ Advantage
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August 14, 2023

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Starting a new business comes with many important decisions, one of which is choosing between renting and business property ownership. Renters and commercial owners each have advantages and obstacles that can impact the growth and success of their businesses. 

In this article, we hope to provide you with a clearer understanding of commercial property loans for new businesses. We’ll explore how using hard money loans for property purchases and refinancing into a Small Business Administration (SBA) loan can make a huge difference. 

Business property ownership and commercial owners

Commercial property loans are tailor-made to help businesses acquire, construct, or renovate commercial properties. 

These loans can come from various sources, including banks and hard money funding groups such as Marquee Funding Group

Owning a commercial property can offer several advantages for new businesses and commercial owners. 

These benefits include:

  • Building greater equity and long-term wealth 
  • Having more control and flexibility in property management 
  • Potentially enjoying tax advantages 

Pros and cons of renting a business property

Renting a commercial property offers several advantages for businesses:

  1. Prime location: Leasing allows businesses to choose a location that benefits their company, often in more desirable areas where purchasing may be too expensive.
  2. Flexibility: Renting provides greater flexibility for businesses that may need to contract, expand, or relocate in the future.
  3. Lower initial costs: Leasing typically requires less cash out of pocket than buying, freeing up funds for investment in the company’s products/services or establishing additional locations.

But there are also standard cons to renting that are the same as when your rent any property: 

  1. Less control: Renters have less control over the property and may be subject to rules and regulations imposed by the landlord.
  2. Rent increase: Rent may increase over time, impacting the business’s budget.
  3. No equity or benefits from appreciation: Renting does not allow businesses to build equity or benefit from property appreciation.

Pros and cons of buying business property

Buying a commercial property has strong advantages:

  1. Equity and long-term wealth: Purchasing a property allows businesses to build equity over time as they pay off the mortgage and as the property appreciates in value.
  2. Ownership and control: Owning a property provides more control over property management and decision-making.
  3. Tax advantages: Property owners can benefit from tax deductions related to property depreciation, interest, and improvements.

But buying may not be right for every business owner as it has its own set of drawbacks:

  1. Higher initial costs: Purchasing a property typically requires a larger down payment and may involve higher initial costs compared to leasing.
  2. Maintenance and management responsibilities: Property owners are responsible for maintenance, repairs, and property management, which can be time-consuming and costly.
  3. Less flexibility: Owning a property may limit a business’s ability to quickly adapt to changes in market conditions or business needs.

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Factors to consider when renting or buying

When deciding between renting and buying a commercial property, businesses should consider these factors:

  • Location: The property’s location can significantly impact the business’s success and customer base.
  • Types and sizes of property: The size and type of property should align with the business’s needs and growth potential.
  • Budget and financial stability: Businesses should consider their budget, cash flow, and financial stability when deciding between renting and buying.
  • Future plans: The decision should take into account the business’s future plans, such as expansion, contraction, or relocation.

Use a hard money loan to become a commercial owner

Hard money loans are (almost always) short-term loans for commercial or investment properties backed by real property. 

They are considered non-conforming and can provide new businesses seeking to purchase commercial properties with greater flexibility and accessibility compared to traditional loan options.

They can be a viable option for businesses that need quick access to funds for property purchases and do not have the credit or financial profile to qualify for traditional loans. 

Once the property is purchased and the business is established, it may be possible to refinance the hard money loan into a more affordable, long-term loan, such as an SBA loan.

Refinance from hard money loan to SBA loan

Hard money loans can open up some great opportunities to purchase a commercial property. Private lenders have the flexibility in both time and requirements to move with the needs of your business. But don’t forget that they are best suited for a short-term investment. 

That’s where the second important step comes in: refinancing your hard money loan into a more long-term solution such as an SBA loan

Benefits of refinancing to an SBA loan

Refinancing to an SBA loan offers several advantages for businesses. 

First, SBA loans typically have lower interest rates compared to hard money loans, which can save money in the long run. Additionally, SBA loans offer longer repayment terms, providing more time for businesses to repay the loan. 

This longer repayment period not only allows for lower monthly payments, improving cash flow for the business, but it also creates flexibility and breathing room for businesses concerned about their cash flow. 

With reduced financial strain, businesses can allocate more funds towards investment and growth opportunities. 

Moreover, beyond the cost savings and cash flow improvements, refinancing to an SBA loan may provide businesses with access to additional funds for expansion or other growth initiatives. 

By taking advantage of these benefits, businesses can not only benefit from reduced financing costs and improved cash flow but also potentially access more capital to fuel their growth and success.

Business property ownership vs. renting—the bottom line

Starting a new business can be a complicated endeavor but not examining the major aspects of your operation means you might overlook either a potential income stream or, worse—a potential income drain. 

The property on which your business will be physically based is going to be one of those major factors; there’s no way around that fact. 

Where you will be working and producing, and who controls how that location is managed, will undoubtedly factor heavily in your day-to-day operations and bottom line.

Unlock the potential of your business with Marquee Funding Group

If you think purchasing a commercial property for your business holds the potential for greater profit, growth, and opportunities—then know that hard money loans offer several advantages.

Benefits include quick approval and funding, as well as flexibility for unique projects. 

Choosing Marquee Funding Group as your hard money lender allows you the best chances of success for your business and bottom line.

Marquee Funding Group is a full-service mortgage banking firm that deals with hard money and private equity loans, offering tailored solutions to meet the unique needs of businesses across various industries. 

With their experienced team of loan officers, Marquee Funding Group is ready to structure mortgage options for your unique scenario, providing financing in as little as seven days.

Don’t let traditional financing options hold you back. Unlock the potential of your business by partnering with Marquee Funding Group for your commercial property needs. 

Submit your loan scenario to Marquee Funding Group today.

Photo by Elena Saharova

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