At some point in most companies history, the goal is to purchase a facility instead of paying rent to a landlord. Most of the time its when they have outgrown a leased facility and realize that a building might be a wise investment for the company. This can be an exciting and worrysome time for a company. Most likely its the the largest facet of small business finance that their company will face.

Unless your company has stockpiled a lot of cash, with today's real estate prices, you will most likely need a loan to make this purchase possible. With owner-occupied property, banks will typically lend around 80% of the buildings cost or appraised value (whichever is lower). If you need to put less down, then you can get creative by either offering up additional collateral, such as your home or other business assets. Another good route is an SBA 504 loan program which allows you to put down 10% as opposed to 20%. As with any government related program, this has higher feeds and more paperwork. The plus side is that its about the only place that you can get 20 year fixed rates, generally at much lower rates than a bank will offer.

The good thing about real estate loans, you can generally qualify for a lower rate than your run of the mill business startup loan. Real estate is still considered very strong collateral, in comparison to accounts receivable and inventory, and this all plays into what rate the bank is willing to offer you. Unlike residential mortgages, commercial loans are typically not sold in a secondary market. That means that the loans are kept on the individual bank's books and, therefore, they are not willing to offer such long terms. The most common terms are 5 year fixed rate balloon with a 20 year amortization. In recent years as competition has stiffened, its not uncommon to see up to 10 year fixed rates and up to 25 year amortization. Competition is a very good thing for borrowers. Rates are typically based off of the corresponding treasury rate. Typically it's anywhere from 175 basis points to 300 basis points. So, as an example, if you are seeking a 7 year loan with a 25 year amortization, most banks will price that somewhere between 2-3% above the 7 year treasury.

After you've had initial talks with the bank, you'll need to get prepared for loan approval. Typically, they will ask you for your last 3 years of business financial statements of all related companies. Also, they will likely require a personal guarantee and ask for personal tax returns and a personal financial statement from the owners of the company. As they are reviewing your financial statements, expect to be cross-sold on some of the bank's value-added services like payroll services, brokerage accounts, merchant accounts, or bank programs for the employees.

While the entire procedure may seem a little daunting, it is generally easy to do if you have your finances in order. Obtaining a commercial mortgage, while time consuming, can also be the easiest to get. With the building acting as collateral, most banks feel comfortable getting a little more aggressive since real estate tends to be a stable piece of collateral that holds is value well. If you do your homework and come prepared, it can be a very easy and pleasant experience for you and your company.