Before you decide to seek an industrial building loan, prepare a short synopsis of your financing needs and your assets for presentation to a lender. Owning your own industrial building affords you the opportunity to grow far beyond that of leasing property. It provides your business with a large amount of equity which can increase the overall value of the business. This can be profitable should you decide to sell the business.
Owning your own industrial building puts your company in a stronger borrowing position. Remember, commercial real estate can be tied to a line of credit. This can allow contingencies for cash flow issues, expansions, or equipment repair or purchases. This type of investment property also provides your company with stability and longevity.
Lenders evaluating industrial building loans have many options. This is a broad category and finance programs vary widely based on such factors as loan amount or whether you will occupy the building yourself or have tenants. Environmental concerns can be a major factor and often slow lenders as the liability for contamination is high within the industrial building loan sector. The downside to owning includes the initial capital investment and you will be responsible for fixing and improving the business for yourself or your tenants.
It is a good idea to check with your lender prior to signing an offer of purchase. Check your documents to make sure that all of the lender’s conditions have been met. For example, the environmental and building inspection could reveal major work to be done which can sometimes be included as part of the loan. You can further protect your business’ cash flow by obtaining a complete quote for moving expenses and including it in your long-term financing. It can be very expensive for a company to move and install equipment at a new location.
Beyond the physical condition, there are some intangibles to consider. Building owners with tenants are vulnerable to sudden economic downturns. An under-occupied building can lead to financial hardships. Payment histories and tenant credit files need to be examined to determine the degree of risk involved. Tenant evaluation is not as important when seeking an industrial building loan as it is with other commercial properties, but it is still important. Lenders check the time left on the current lease and other relevant information. They will be most concerned about the time left on the lease. Some lenders will not lend you money beyond the term of the tenant lease. For older buildings, the insurance policy may contain a list of claims that have been filed, pointing out the building defects and potential problems.
There are things to consider when you are deciding to seek an industrial building loan. Return on investment (ROI) is the measuring rod that all investors should be using when they are entertaining the purchase of an industrial building. What return will you receive on the investment? The lender will want to know that you can repay the loan. What is the LTV or loan-to-value ratio which is the amount of debt as compared to the value of the property? The investor’s bottom line is the net operating income which is the gross income of the property less direct operating costs, but excluding depreciation, amortization and interest expenses. The NOI will dictate what industrial building loan the investor will receive and how much money he will have for his discretionary income at the end of the fiscal year.
Ownership of an industrial building can be risky, but if you follow the right steps in seeking that industrial building loan, you will be able to reduce that risk, profit from multiple revenue streams and grow your company.
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