Own or rent: the first decision
Ownership builds equity and fixes your occupancy cost, but it ties up cash and adds responsibility. Renting keeps cash free for operations.
Compare the monthly cost of owning against renting honestly. Ownership includes mortgage payments, property taxes, insurance, maintenance, repairs and the roof that eventually fails. Renting includes the rent and its annual escalations. Include the cost of the down payment, since that cash could have been used in the business.
Illustrative example: a shop pays $6,000 a month in rent. A comparable building costs $900,000. A 20 percent down payment is $180,000, and a loan on the rest may cost around $5,500 a month in payments, plus $1,500 a month in taxes, insurance and upkeep. Owning costs about $7,000 a month and requires $180,000 up front, so it only wins if appreciation and long-term control matter to you. Run your own numbers. Our articles on buying commercial real estate and commercial real estate rates go deeper.
How commercial real estate loans work
A commercial mortgage is secured by the property, usually requires a significant down payment, and takes weeks to close.
Lenders typically look at the property value through an appraisal, your business and personal financials, and how much income the business can use to cover the payment. Terms are long, and some loans include a balloon payment due before the full amortization ends. Closing costs, appraisal, environmental review and legal fees add up.
Read our overview of commercial real estate loans and getting a commercial real estate loan. ROI Funder does not place these loans. If you are pursuing one, work with a bank or commercial mortgage lender.
The SBA real estate route
SBA-backed loans can offer long terms and lower down payments for owner-occupied property, but they are slower and paperwork-heavy.
The SBA guarantees certain loans made by participating lenders, and real estate purchase is one of the permitted uses when you occupy the property. Requirements, maximum amounts, down payment and occupancy rules change, so confirm current details on SBA.gov or with an SBA lender. Our guide on SBA real estate loans explains the general structure, and SBA loans covers the family of programs.
Where ROI Funder can still help
Use ROI Funder for the cash needs that surround the purchase, not the mortgage itself.
- Down payment gap: a term loan may cover part of the cash needed, but check whether your mortgage lender allows borrowed down payments. Many do not.
- Renovation and move-in: a term loan or working capital after closing.
- Equipment and fixtures: equipment financing, with the equipment as security.
- Overlap costs: paying rent and mortgage at the same time during the transition.
Always disclose additional borrowing to your mortgage lender. They will see it in your credit and bank records.
Risks of buying property with business debt
Property ties up capital and increases fixed costs. If sales drop, the mortgage does not flex.
- Fixed monthly payment regardless of revenue.
- Large down payment reduces your cash cushion.
- Repairs, taxes and insurance rise over time.
- Selling a commercial property can take months.
- Personal guarantees often apply.
Stress test the plan with revenue down 20 percent and see if you can still pay everything. See stress testing payments if revenue drops.
Questions to ask before you start shopping
Know your budget, your occupancy needs and your exit options before you look at buildings.
Decide how much space you need now and in five years, what zoning the business requires, and what parking, loading and visibility mean for sales. Check whether the property needs environmental review, particularly for former industrial or fuel-related sites. Have a commercial real estate attorney review the contract and title.
Plan for the second building cost too: the one you do not pay at closing. Roof, HVAC and parking lot repairs can be large, and an inspection before purchase is worth the fee. If you want to lease part of the building to tenants, confirm how that rental income will be treated by your lender. Run the numbers on a conservative vacancy rate.
What ROI Funder needs to review a file
ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue, with a complete file of the application plus 3 months of business bank statements.
Apply online in a few minutes with a soft credit pull and no obligation. Offers are matched to funders in our network that fit your file, from $5,000 to $5,000,000. Timing varies by product: working capital can arrive the same business day on approved, complete files, while term loans take 1 to 5 days.
Frequently asked questions
Does ROI Funder offer commercial mortgages?
No. ROI Funder does not place commercial real estate loans. We can help with related business cash needs such as renovations, equipment and working capital.
Can I use a business loan for my down payment?
Possibly, but many mortgage lenders restrict borrowed down payments. Ask your mortgage lender before you borrow.
Is an SBA loan the cheapest way to buy a building?
Often among the lowest cost, but it is slower and has detailed requirements. Confirm current terms with the SBA or an SBA lender.
Should I buy or keep renting?
Compare total monthly ownership cost and the cash tied up against rent and what that cash could earn in your business.
Is a business credit card useful for the purchase?
Not for the property itself. Cards are for small, short-term expenses and cost far more than a mortgage. See our overview of business credit cards for what they suit.