March 29, 2024

Small Business Advice

With interest rates low, it's a good time to buy a building for your business

Jerry Osteryoung | 8/26/2016

"We at Chrysler borrow money the old fashion way. We pay it back. " ~ Lee Iacocca

Recently, I was talking with a very 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 some nice rental income for her when she retired. Even if she sold the business, it could be part of the deal that the business stay in her building for so many years.

Initially, her biggest concern was location. She wanted to find something similar to her current location. However, when I asked her 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 come find her no matter where she is. She could afford to be back a street or two.

While we were talking, I mentioned that interest rates would likely 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 now. Just look at how you can get a car loan for under 2% these days.

If we assume a 5% commercial loan rate – and, frankly, I have seen lower – this business can afford to spend about $500,000 on a new building without their payments increasing. They will need a down payment, of course, but the point is that their operating costs will not increase. Plus, the amount of debt will decrease over time as their 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, while rates are still low and great locations are available. Look into a Small Business Administration loan. They offer very low rates.

Another piece of advice: find a great realtor who understands your business and financial situation to help you through the process. While there are a lot of legal issues to be addressed in this type of transaction, it is well worth the effort.

If you are currently renting a building, go out and see if buying makes good economic sense for your business. If it does, start the process now, as rates will probably never be this low again.

Dr. Osteryoung has directly has assisted over 3,000 firms. He is the Jim Moran Professor of Entrepreneurship (Emeritus) and Professor of Finance (Emeritus) at Florida State University. He was the founding Executive Director of The Jim Moran Institute and served in that position from 1995 through 2008. His newest book co-authored with Tim O'Brien, "If You Have Employees, You Really Need This Book," is a bestseller on Amazon.com. He can be reached by e-mail at jerry.osteryoung@gmail.com.

Tags: Florida Small Business

Florida Business News

Ballot Box

Should Congress ban the popular social media app TikTok in the U.S.?

  • Yes
  • No
  • Need more details
  • What is TikTok?
  • Other (Comment below)

See Results

Florida Trend Media Company
490 1st Ave S
St Petersburg, FL 33701
727.821.5800

© Copyright 2024 Trend Magazines Inc. All rights reserved.