An owner-occupied real estate loan is used to purchase or refinance the building or property where the operations of your business take place. This loan gives you ownership on the space and property where your business operates. If the space you are renting is in a shopping center or on a lot and you are looking to own more than half of the property, you can apply for an owner-occupied real estate loan to purchase the property when it’s placed for sale. Here are some pros and cons to consider before applying for an owner-occupied real estate loan.
Purchasing the building or property will allow you to build equity — every payment that you make is an investment into the ownership of the space that your business operates out of, rather than it being spent on rent. The equity that you build can be used as a future investment to open another location or to expand your current space. You would also be taking ownership of the property, which would allow you to make any changes that you have in mind. You could customize and renovate without having to get approval from a landlord. When applying for the loan, look for a fixed term that will lock in the interest rate during the term of the loan to help provide security for your business.
Owning the building or land also allows you to generate revenue if you choose to resell or rent the space that you don’t use. Purchasing the property is an investment that generally increases in value over time and will build up your portfolio. If you do not plan to sell the property, you may want to consider including your business in your estate plan for your children or loved ones to inherit.
However, owning the business or property can affect the amount of liquid funds that you have available on hand. This means that if you do not have money set aside, you may not be able to afford any repairs or emergencies that may come up. It also increases the possibility of having to sell the property if your business doesn’t do well.
You may also face the difficulty of making the initial down payment. The amount of down payment that you need to purchase the property will depend on the loan amount. If you are barely starting up your business, you may want to lease before owning to get familiar with the location and see if your business performs well. As an owner of the property, you will also be taking on the responsibility of property taxes and insurance as well as maintenance and upkeep. An owner-occupied real estate loan is best for a business that is already established and experiencing success.
“When you’re ready to apply for an owner-occupied real estate loan, it’s important to know how much you will need to borrow, how you will repay the loan, and bring documentation to show the historical income for your business,” said Chris Tompkins, senior vice president, chief commercial services officer at GECU.
The GECU Business Services team is available to help you do more for your business. As an Equal Opportunity Lender, GECU has the tools and solutions that you need to start, improve and grow your business. Visit gecu.com today or call 778.9221, toll-free at 1.800.772.4328, to see how GECU is open for businesses and find out how easy it is to become a member.