Finding, renting, or purchasing an office space has been challenging for most businesses in recent years. This challenge stems from the overwhelming consensus about the importance of office spaces for small and established businesses. Surprisingly, while some states and towns have bustling office space availability with affordable rent and financing options, New York, Chicago, and other states have limited office spaces.
Overall, the demand for office buildings in the U.S. has increased as startups and businesses grow and expand. If you run a business and are currently leasing your office space, you should consider buying one. Jeff Tabor Group, office space brokers, can help you make the right choice. Like other real estate purchases, cash shouldn’t be an issue, thanks to various available financing options.
Why Should Businesses Consider Financing for Office Space?
Business owners should consider taking an office building loan or mortgage for the following reasons:
- To expand commercial office space – you can use office space loans to renovate your office space or expand, and remodel an old office, especially if you want to rent out part of the space to other businesses.
- Expand workspace – the cost of expanding your small business can quickly add up. Besides the demand for more space, you should hire new employees, buy more equipment, and meet other unexpected costs that can deplete your profits. You should consider office space financing in such situations.
Financing Options for Office Space
You should consider the following office space funding options:
1. SBA loans
The U.S. Small Business Administration offers loan programs for business owners in need of office space financing. Like FHA loans, SBA loans require applicants to be approved by commercial lenders to qualify for the loan. Business owners can qualify for the following SBA loan options:
- SBA 7(A) loan – The 7(A) loan is SBA’s flagship program that borrowers can use to renovate, construct new properties, and purchase land and buildings. Business owners can borrow up to $5 million at an 11.25% interest rate and a 25-year allowable repayment period.
- SBA 504 loans – These are fixed-rate funding options that borrowers can use to purchase equipment, buildings, or land. Similarly, borrowers should satisfy some requirements to be eligible for this loan. For businesses, you should have a small business, management experience, and a viable business plan.
2. Commercial bridge loans
As the name suggests, commercial bridge loans are quick loans that can be used to supplement funding (bridge the gap) until borrowers find long-term financing for their office space purchases. Business owners can use this loan to compete for cash offers for office space before securing long-term financing for property purchases.
Most bridge loans have short repayment terms, typically between six months and three years, and should be paid fully. Unfortunately, you can only access these loans from alternative lenders at a slightly higher interest rate. Qualifying for these loans is also challenging.
3. Traditional commercial mortgage loans
You can also purchase office space expansion and other renovations using a traditional commercial mortgage loan. However, the terms for these loans vary. For instance, some lenders offer amortized loans with up to 20 years repayment period, while others offer interest-only loans with 10 years repayment period. Most commercial mortgage lenders allow between 65 and 80% loan-to-value ratio.
Unlike typical commercial loans, qualifying for a real-estate mortgage is quite difficult. Most banks insist that business owners should have a good credit history and a high debt-to-income ratio. If you meet the eligibility criteria, traditional mortgage loans are a good option because of their low-interest rates.
4. Hard money loans
Hard money loans are nothing compared to traditional lenders. These loans are issued by individuals and private lenders without much scrutiny of the borrower’s ability to pay. Lack of scrutiny simplifies the approval process. However, lenders focus on the property value and use it as security for the loan. Lenders can easily sell your property if you default on the loan. Interest rates are also typically high on these loans.
You can take advantage of various financing options to expand your business and commercial office space. However, you should understand the various loan options, especially the interest rates and repayment terms, to avoid defaulting. Comparing various loan options also saves you a lot of cash. Women and veterans can also access special loans and grants for their businesses.