What Real Estate Investors Should Know About the Basics of Commercial Debt Financing

If you’re a business investor looking to finance your upcoming purchase of commercial real estate, there are several rules of thumb regarding proper commercial debt financing that you may want to keep in mind. Purchasing commercial properties can often be a worthwhile move for large and small businesses alike, but financing a property frequently involves a complex legal process and can sometimes place a financial burden on a company. Fortunately, you may be able to avoid the pitfalls of this process by preparing yourself with information and learning about your company’s options. Here are some of the primary rules of thumb to remember as you shop for corporate commercial property.

You May Be Able To Make an All-Cash Purchase

If your company is liquid enough, one of the simplest options for avoiding the search for financing is to pay for your property in cash upfront. Making an all-cash purchase is often not as common as financing a real estate purchase due to a large amount of money it usually requires. However, if your business can save up enough cash to take this route, it could come with several advantages. Namely, you could:

  • Avoid debt repayments
  • Own a property in full from the get-go
  • Maintain a strong business credit score
  • Out-compete other offers on the property

It’s Important To Research Loan Options Before Deciding To Apply

Should your company opt for financing rather than paying in cash, make sure you research all your loan options prior to making an offer on a property. Some common loan choices in this space include:

  • A commercial property loan
  • A hard money loan
  • Backing from a private financial lender
  • Other types of conventional bank loans

Avoid Taking On More Debt Than a Commercial Property Is Worth

Lastly, doing your accounting carefully is essential in the commercial property-purchase process. It’s important to avoid taking on excessive corporate debt. Be extra careful if you find yourself faced with:

  • An overheated market
  • Inflation
  • Exaggerated list prices
  • Excess competition among investors
  • An in-demand location

Perhaps one of the trickiest parts of making a successful and fruitful commercial real estate purchase is securing adequate financing or figuring out a way to cover the cost of the purchase that won’t prove burdensome to the company. The good news is that you can secure the commercial property you want for your business without burning a hole in your pocket by keeping a few rules of thumb and key options in mind. You may be able to pay in cash, you can research your loan options thoroughly before applying, and you should avoid taking on an excess debt no matter what.