Buying could be a viable option

I was recently talking with a successful entrepreneur who was considering buying a building for her business. Rent was costing her about $3,000 a month, and she felt owning might be more beneficial. I assured her that owning could provide rental income after she retired. Even if she sold the business, part of the deal could be that the business stay in her building for a certain number of years.

Her biggest concern initially was location – she wanted to find something similar to her current location. However, when I asked if her customers come to her because of her location or because of her business, she said they come because of her business. That is, they know her or have heard about her through word of mouth or past experience. That being said, it was not as important for her to be on a major highway because her customers will find her no matter where her business is located.

While we were talking, I mentioned that interest rates likely would increase after the election and that now is a great time to borrow money. So many financial institutions have excess cash and are eager to make loans. Consider, you can get a car loan for less than 2 percent these days.

If we assume a 5 percent commercial loan rate – and, frankly, I have seen lower – this business can afford to spend about $500,000 on a new building without its payments increasing. The business will need a down payment, of course, but the operating costs will not increase. Plus, the amount of debt will decrease over time as its equity grows.

Though buying a building is not the panacea for every business, it can be a viable alternative to renting. If you are considering buying, now is the time to move on it, since rates are still low and plenty of locations are available. Look into a loan from the Small Business Administration, which offers low rates.

Another piece of advice: Find a realtor who understands your business and financial situation to help with the process. There are a lot of legal issues to be addressed in this type of transaction, so it is well worth the effort.

If you are renting, explore whether buying makes good economic sense for your business. If it does, start the process now, as rates probably will never be this low again.

You can do this!

This story was originally published August 25, 2016 at 10:42 AM with the headline "Buying could be a viable option."