If it’s a start up business, it’s never a good idea to buy. A new business needs capital to build their products, buy inventory for their new store, or buy desks for their office. There is always a ramp-up period for any new business owner. Very few come out of the box making money. In the beginning, keep your capital and make sure you can get your business up and running.
As a business gains maturity, the thought of buying starts to make more sense. The first step would be having a lease versus purchase analysis done. If you are a looking at a similar size property that you are currently leasing, your occupancy costs can be surprisingly close to what you are paying already.
Let’s say that your lease costs are similar to what it would cost you to purchase. Make sure that you consider all costs when doing your comparison. Don’t forget insurance, property taxes, repairs and maintenance.
Even if the cost is more, and it will be, why should you consider a purchase?
1) You will be paying off the loan and be building equity.
2) You can design and make the space totally custom for you, without having to get your landlord’s consent.
3) If and when you sell your business, you can then lease the new business owner your building. You can make your money on the sale and then you get cash flow from the rental payments.
4) You should expect it will give your company a brand identity, something you can’t get if you are in someone else’s building.
Then the question becomes “is financing available and can I get it?” Yes, there are plenty of financing sources available. Every bank loves owner occupant buildings. These are their number one favorite loan.
There is great financing available through the Small Business Administration. An owner user can get by with as little as 5% down through a program call the 401K loan program, as long as you occupy more than 50% of the building. You can also finance equipment in the loan. It is a great time to buy if you are an owner user. Interest rates are at historic lows and bankers are hungry.