With interest rates down to a level not seen in years, businesses interested in financing or refinancing an owner-occupied facility may be able to save thousands of dollars a year on their largest fixed cost.
Owner-occupied professional offices, medical buildings, and retail/industrial warehouses are typical examples of properties that will benefit the most from today’s lower rates.
While most qualifying facilities are used entirely by the borrower, “owner-occupied” doesn’t mean the door must be closed to other occupants. Banks usually allow an owner to lease as much as 49 percent of the premises to a paying tenant.
If your business is currently leasing facilities, ownership could reduce your costs. Mortgage interest is generally deductible as a business expense, but check with your tax advisor to make sure this applies in your situation.
As your own landlord, you’ll also have more flexibility and independence in making decisions. Perhaps most satisfying of all, you’ll have the freedom to buy or build exactly what you need.
Choosing a loan that suits your cash flow
Financing on newly purchased or constructed owner-occupied real estate is typically based on a maximum 80 percent loan-to-value ratio.
Owner-occupied real estate loans generally fall into two categories: full-term amortization, or balloon financing. Either one can give you interest-rate protection for as long as seven years.
Full-term loans are often based on 15-year amortization. Many owners choose rate adjustment every five years, but protection for one, three, or seven years is also available. At these intervals, the rate resets to a certain margin over the current yield on comparable Treasury securities.
Balloon loans typically have a fixed rate for five or seven years, with amortizations up to 20 years. A balloon payment is due at the end of the rate-protected term. At that time, the owners can apply to renew the loan at a new fixed rate and term.
If you’ve been thinking about buying, building, or refinancing business facilities, today’s low interest rates could make this the perfect time to act.
Danny Lawson, a vice president in Bank One’s Business Banking Group, is area manager for Oklahoma City. He may be reached by phone at (405) 231-7283 or via e-mail at email@example.com.