If your company has considered expansion, now may be the time to pursue it, thanks to interest rates which are at their lowest in decades.
“I don’t think I have ever seen the rates like this,” says Jay Shaw, vice president and manager of Fifth Third’s commercial real estate group.
Whether you’re interested in constructing a new facility or adding to an existing one, if all the other financial puzzle pieces are in place, you may want to act now. Or if your business has been leasing space, it may be the right time to buy.
“The advantages of ownership are similar to those you experience when you purchase a home,” says Shaw.
For instance, your business can deduct the depreciation of the building on its tax return, and most buildings increase in value over the years. Also, says Shaw there has been overbuilding in parts of Columbus, meaning buildings are priced to sell.
So what financial pieces need to be in place?
“Banks look at cash flow to cover the debt, first of all,” says David Vogt, senior vice president and commercial real estate product manager at Huntington Bank.
If your current cash flow covers the debt, great. If it doesn’t, be prepared to calculate projections, based on the increased income the investment will bring.
“You may have to make some assumptions,” says Vogt. “If the expansion means more sales, then you’ll need to develop projections that show the increased sales covers the debt.”
Loan to value ratio is also important.
“The sweet spot is a 75 percent loan to value ratio,” says Vogt.
In other words, if you’re purchasing a building for $1 million, the loan amount cannot exceed $750,000.
And don’t forget location.
“If your customers come back to you because of your location, you may want to stay where you are and expand,” says Shaw. How to reach: Jay Shaw, Fifth Third Bank, (614) 341-2553, David Vogt, Huntington Bank, (614) 480-4988
