Should Your Business Buy Its Building? Commercial Building Loans for Oregon Small Business Owners

If you have been paying rent on the same space for years, at some point the math tips toward owning it. I pay rent on a studio too, so I have had this conversation with myself. Here is how I think about it, and what a commercial building loan actually involves.

I am a mortgage broker in Oregon City, and I help business owners buy the buildings they work out of.

The case for owning

Rent goes up. A loan payment on a building you own is more predictable, and at the end there is a building. Your business pays rent to you instead of to a landlord, which can matter at tax time and matters a great deal at retirement time. You control the space. Nobody sells the building out from under you or declines to renew.

The case for renting

Owning ties up cash that might grow the business faster somewhere else. Buildings need roofs and furnaces and parking lot repairs, and now those are yours. If your business might outgrow the space or move in a few years, owning makes that harder. And a commercial loan is a bigger lift than a home loan, with more documents and a longer timeline.

Neither case is right for everyone. The question is which one is right for your business this year.

What a commercial building loan looks like

An owner-occupied commercial loan is a loan to buy a building your business will operate from. The lender is looking at three things.

The business. Two or three years of business tax returns, year to date financials, and a sense of whether the business can carry the payment with room to spare. Lenders talk about debt service coverage, which is a fancy way of asking whether the business makes comfortably more than the loan costs.

The borrower. Your personal credit, your personal returns, and usually your personal signature backing the loan. The business borrows, but you stand behind it.

The building. An appraisal, the condition, and sometimes an environmental review depending on what the property was used for before.

Down payments on commercial loans are generally larger than on a home. Terms are different, and the timeline from offer to closing is longer. I will walk you through all of it on paper, the same way I do a home loan, before you make an offer on anything.

Questions to answer before you call me

• How long do you plan to be in this space?
• Could the business keep paying the rent you pay now if it became a loan payment, plus taxes, insurance and upkeep?
• Is there a building available that fits, or are you buying the one you are in?
• Would you rent part of the building to someone else?

That last one matters. Many owner-occupied loans want the business to use most of the building, and renting out part of it changes which programs fit.

What I need to get started

Two to three years of business and personal tax returns. Year to date profit and loss and balance sheet. A summary of the business, what it does, and who runs it. If you already have a building in mind, the address and the asking price.

I serve Oregon City, Clackamas County, Multnomah County, Washington County and the rest of Oregon. Message me and let us see if your lease is costing you a building.

Becky Chambers, Mortgage Broker, NMLS #2814018. Freestone Mortgage, NMLS #2613454. Licensed in Oregon. Equal Housing Opportunity. For informational purposes only. This is not a commitment to lend. Commercial loan terms and availability vary. Verify tax questions with a licensed tax advisor.