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.

As far as rates go, you can typically qualify for lower rates than your typical business startup loan. Since the note will be secured by a piece of physical real estate, banks tend to be more aggressive with rates. Commercial loans differ from residential in that the rates are not locked for as long as residential loans. With a residential mortgage, banks sell those to secondary financing companies immediately after funding. With a commercial loan, they stay on the books so they are not as willing to offer a long term rate. What you will normally see is a five year fixed rate and a twenty year amortization, which simply means your rate is locked for only 5 years but your payment is as if you have a 20 year loan. As more and more banks enter the market, it has forced lending institutions to offer more flexible rates to its commercial clients. This includes fixed rates as long as 10 years and amortization as long as 25 years. This is good news for the borrower. Now, the way loans are priced is off the treasury rate. Typically, banks will offer between 2%-3% above the appropriate treasury rate. 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.

Ok, once you're gotten the initial scoop from your local lending institution, you need to get ready to submit a loan application. Most banks will seek 2-3 years of financial statements or tax returns on the company so they can get a history of whether the business can support the new debt payments. They'll also require a personal guarantee of the owner of the company, so they will look for some statement of personal net worth as well as tax returns from all owners. 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.

All in all, the entire process can be pretty easy to work with. Obtaining a commercial mortgage, while time consuming, can also be the easiest to get. You have strong collateral in the building and you can also can justify the cost because you are eliminating an expense (rent) and just replacing it with the mortgage payment. If you do your homework and come prepared, it can be a very easy and pleasant experience for you and your company.