Small business owners who want to purchase commercial property should learn about interest rates and loan structures. David Forrest, vice president and business development officer for Fidelity Bank in Raleigh, shared information on the topic with ShopTalk. Here are his edited comments.
Small business owners can secure loans and financing options for commercial real estate through traditional banks and the U.S. Small Business Administration.
The repayment period or amortization period for commercial property is usually 15 to 20 years, and the loans usually include a balloon payment due at the end of a set time period, usually five years. Technically, the loan is due at this point; however, many banks will extend the loan terms to maintain business with the company.
Interest rates for commercial real estate tend to be higher than residential rates.
Also, commercial loan down payments are usually larger, and the repayment period is typically shorter than home loans. Usually, the down payment for commercial property is about 20 percent of the real estate price, but that can vary based on the financial strength of the company, the financial strength of the loan’s guarantors and the type of commercial property being purchased.
A property that has multiple uses usually requires a lower down payment than one that is a special use or single purpose property.
Also, small business owners in need of a smaller down payment might qualify for the SBA’s 504 Program (www.sba.gov/content/cdc504-loan-program), which offers fixed rates and long-term financing that can be used for assets and expanding or modernizing small businesses.
Because commercial loans are usually not sold from one bank to another, and stay on the bank’s books, lenders can usually customize them to fit clients’ needs.
Borrowers can work with lenders on loan options, such as interest-only periods, and make changes to amortization schedules that fit the business owner’s needs and budget.