Determining Where
Your Business Calls Home

by Kevin Kramer

Owning your own building gives you complete control over your own space. Ownership does not waste improvements that don’t help you at the end of a lease term.

As a business owner, you understand there comes a point in the evolution of your business when an important decision must be made, one that can keep you up many hours at night weighing its impact. That decision is whether or not to move to a new location. If you decide to pursue a new location, several factors play into the mix, allowing you to make the most informed and profit-able decision for your company. After weighing the factors, you must decide whether to buy a new piece of property or lease one already on the market. Finding the correct answers to these questions can prove to be extremely difficult.

Owning your own building gives you complete control over your own space. Ownership does not waste improvements that don’t help you at the end of a lease term. It does, however, tie you to the property and eliminates your ability to “walk away” at the end of the lease term.

Making the decision to move only starts the ball rolling. If you decide to purchase a piece of commercial real estate, that decision can be an important step in your company’s evolution. Once that decision has been made, it’s time to decide how to make it a reality.

Most business owners do not have the cash balances available to purchase new property outright. Most likely, therefore, you will need to look at financing options that are available to you. Determining the best option is dependent on many different factors. First, will the property be occupied by you for your business? What is the financial status of your company? And finally, what is the expected useful life of this property for you and your business? Your commercial banker can be a valuable tool to help you evaluate all financing needs at your disposal.

First, your banker will be able to propose financing, which will be held within his or her institution. These real estate loans typically are the most flex-ible and offer the quickest turnaround time of any financing options on the market. Many times, they require the least amount of paperwork on behalf of the borrower. This flexibility is key when you are trying to adjust a financing package to fit the needs of your company. This also allows you to take advantage of below-market deals when an expedit-ed closing window is required.

Secondly, your bank also can offer other real estate programs backed by federal or local public entities, such as the SBA504 loan program. These programs offer your lending institution partially guaranteed borrowings, along with the ability to offer you a longer-term fixed rate on a portion of your loan amount. They also allow small business owners the ability to invest a smaller down payment than might be required on other financing options.

Many of these government-backed lending programs have lending limits between $1 million and $5 million, depending on the type of transaction.

Another option that your banker can provide is long-term fixed-rate financing packages, offered through the secondary markets. These “capital markets” transactions allow you to tie in to long-term fixed-rate financing on properties tha t are valued at $2 million or more. While these financing opportunities give you a longer-term fixed rate, they also require a little more lead time to complete the transaction, as well as have significant penalties for early termination of the lending agreement.

The environment for business owners to enter the real estate market has never been stronger. The numerous financing options, some of which have been listed above, provide business owners with the opportunity to find the package that is tailored to their needs.

Take advantage of your relationship with your banker and your tax advisor to make the best decisions for your business. Before you know it, your business will have a new place to call home.

Kevin Kramer, is the Senior Vice President and Manager of Metro-politan Accounts for UMB Bank and is an Ingram’s 40 Under Forty honoree from 2003. You may contact him at 816.860.7964 or Kevin.Kramer@UMB.com