What are the facts regarding owner-occupied commercial real estate?
What are the facts regarding owner-occupied commercial real estate?
What is owner-occupied commercial real estate? To meet the requirements for owner-occupied commercial real estate, the property owner must occupy 51% or more of the property, and a minimum of 51% of rent paid must come from the owner and/or guarantor or affiliate of the owner.
Can the property be owned by a limited liability company that is a different entity than the business? Yes, as long as the operating business leases from the LLC and the operating entity and the LLC are owned by a majority of the same owners. There has to be a direct correlation between the two entities and ownership. The majority of business owners who own their real estate use an LLC to own the property.
Is owner-occupied commercial real estate the right choice for my business? Owning your own building gives you control over:
Increasing rents as lease rates typically only go up over time.
The condition of the property—you determine maintenance and improvements.
Who your neighbors are if there are additional tenants in the building.
Another advantage is the ability to build equity in the tangible real estate asset. Tax and financial advantages exist as well and should be discussed with your accountant and financial advisor.
How much money do I need for a down payment and what are the terms? Typically, an owner-occupied commercial real estate loan will have the following terms; a 20% down payment, an interest rate that is fixed for 3-7 years with an amortization of up to 20 years.
What financial requirements are needed to qualify for the loan? While each application and transaction is different, the bank will look at factors such as historical profitability of the operating business that will be paying the lease payment, financial strength of the individual owners and guarantors, current lease rates for similar types of properties in the area and credit history of the business and guarantors.
Are there Small Business Administration programs available for owner-occupied commercial real estate? Yes, the most common SBA program for owneroccupied commercial real estate is the SBA 504 Program. This program allows for a smaller down payment of 10%. The remaining 90% is split into two loans—50% of the loan will be funded with traditional bank financing and 40% funded by the SBA. The main advantages of using this program are the lower down payment and a 20-year fixed rate on the 40% SBA loan. To initiate a SBA loan request, contact your lender at Silver Lake Bank.
