By Jonathan Ensch
The physical structure of your business – your building – may be the most important part of your business. It’s where your customers come to purchase goods or services, where your employees work, and it can also be where you manufacture your product. But with the hot commercial real estate market in Whatcom County, that can mean ever- increasing rent prices, which can create uncertainty for business owners who lease their building. When interest rates are low, as they are right now, it can be an opportunity for business owners to invest in themselves and enjoy long term benefits while doing so. And since banks often consider owner-occupied commercial real estate financing to be a desirable lending category, the process for getting approved and owning your building may be easier than you think.
Here are a few things to keep in mind if you’re interested in purchasing owner-occupied commercial real estate.
Start early. I always like it when someone comes in early, and says, ‘I want to own and operate out of my building, what do I need to do to make that happen?’ That doesn’t happen often enough, and I want people to realize that bankers are always willing to have that conversation with you, even if you’re not ready to buy for years to come. Starting a relationship with a lender can set you up for success and prepare you for what to expect, so you are prepared when you are ready to buy.
Know your business story. Lenders realize that every company has its ups and downs. If you’ve had a bad year, don’t be discouraged, but be prepared to disclose and explain it. On the flip side, you’ll also want to be able to explain any banner years in your history. Showing the overall trajectory of your company helps a lender better understand your story, which in turn could make them more likely to want to partner with you. Taking a little time upfront by having your tax records and financial statements readily available, and having your business story prepared, goes a long way. A lender will first consider the business financials but will also view your personal financials as a guarantor for your loan.
Consider the financial benefits. Owning your building comes with numerous, immediate benefits. Not only can you depreciate the asset over time, but you can also deduct your annual interest on your loan. Consult with your accountant regarding potential tax benefits. Ownership can also eliminate the uncertainty associated with renting. Most commercial leases have automatic escalation clauses regardless of economic conditions. Fixed financing options that come with ownership allow you to budget your monthly expenses. If you have excess space that you can lease to an unrelated tenant, that rental income can help supplement your mortgage payment. And finally, an owner-occupied building is a great asset when it comes to your retirement and estate planning. Owning a building allows you to collect a monthly rental income from tenants once you have retired and sold the business. You also have the option to sell the building and cash out that equity.
Forecast your future. People get nervous about forecasting their growth potential because they think they will be held to that standard. Just remember, business planning doesn’t have to be a scary process, and a good lender understands that businesses evolve and change. There are numerous resources available that can help you create a business plan and forecast estimated earnings, so don’t be shy about asking for help.
I’ve lived in Whatcom County for 15 years, and it’s so gratifying to be able to help local business owners secure their futures in this community. Transition Bikes is a great example of a Peoples Bank customer who used financing to take ownership of their Bellingham headquarters and showroom. Although they’re a global brand, establishing and maintaining roots here in town has been vital to their business. I encourage other business owners to learn more about how they can take advantage of the local real estate market and commercial financing programs to establish their roots and gain the financial rewards of owner-occupied commercial real estate.
Jonathan Ensch is a Senior Vice President and Commercial Banking Officer at Peoples Bank.