Why would I stand up against the downpour of economic negativity all around us from pundits, talking-heads, and even many bankers? (Yes, we’ve even heard about life-long employee-bankers tell businesspeople not to buy property right now — maybe they’re too inwardly-focused on their poor residential loan decisions.) Well for starters, there are commercial property deals out there that didn’t exist 12 and 18 months ago, as many prices per-square-foot have come down (and cap rates have risen) in the past several months. Commercial rent rates (the variable expense that business owners CAN convert to a fixed cost) rose more in 2007 than in any other time since 2001 and must continue to rise (perhaps after a brief plateauing currently) in order to produce the returns commercial landlords (especially newer ones) need to justify their investments. Lastly, interest rates for commercial property are near all-time lows. The 10-year Treasury yield (which virtually all commercial financing indices track) hasn’t been this low in my lifetime. Sure, the press gives plenty of attention to reductions taken by Chairman Bernanke, but these mostly affect short-term borrowing — they do virtually nothing to long-term borrowing costs for things like commercial real estate. If you’re like me and have courage to spare, then arguably there hasn’t been a better time to buy commercial property in recent memory. The value you can create in the present environment is staggering . . . IF you’re a smart contrarian. And it is a BIG reason we’ve just had our biggest January and February EVER! If you or your Clients still rent their commercial space, perhaps this once-in-a-generation information is welcome news. I’m sure there’s at least one person you ought to share this with . . . like, IMMEDIATELY.
Capital and cash-flow are king for business owners, but even the most well-intentioned forget it. A former Client of mine (very briefly) started a food preparation business for busy families. While there are plenty of these concepts in franchised form, she wanted to start it from scratch. Since she was just beginning, it made no sense to purchase her property, so she rented her facility. Her banker didn’t really like the kitchen equipment and other leasehold improvements as collateral, but rather than searching for other options, she plowed most of her cash into paying for these things. Strapped for capital to operate and market her business, she closed down not quite six months later and went back to work for someone else, instead of realizing her dreams. Sad. Truly sad on many levels. So what should she have done? She should have gone to another banker and gotten an SBA 7(a) start-up loan with terms that would have allowed her to stretch her dollars. She would then have had the capital to operate effectively and market her business in order to establish it in the marketplace. Years later, she would then have needed to buy her commercial property to create additional wealth from her business (not through operating it, but through converting her rental payments into an income-produced mortgage payment on an appreciable asset like commercial real estate) with cash-flow sensitive financing — meaning longer terms and half as much cash down. But now, her dreams are shattered. This is exactly why, in good times and bad, I’ve always advocated putting as little cash down as possible — to be like all the other smart investors who always try to get the greatest return from their investments, not merely to appease the first banker they speak to. It’s also why getting longer terms with real estate financing makes so much sense — you stretch your payments so you can weather the cycles and worry less, but always have the ability to prepay when you’re in great times. It’s like having your cake and eating it, too. But no matter how many times I’ve stated this over the years, many people think the good times will always continue when we’re in one, and they preserve virtually nothing for when times get tough. Well-intentioned is nice, but it often doesn’t produce the results we need. As a fellow business owner myself, I KNOW (certainly more than employee-bankers telling people, “now isn’t a good time to buy”) that preserving cash is a regular balancing act for entrepreneurs. Why anyone willingly increases the risks to their business to put down two to three times the capital that’s needed for their bank when our SmartChoice Commercial Loan is readily available is beyond me. Why anyone would accept a 15-year amortization on a commercial loan that ends up pinching your monthly cash-flow when 25-year and 30-year terms are available from us is beyond me. Why anyone would continue leasing their property after they’ve established themselves in their marketplace, just making their landlord wealthy is beyond me. Why anyone would work with an ordinary banker, instead of an entrepreneurial one (not an oxymoronic statement in our case) is truly beyond me! Perhaps it’s time we chat.
This is THE place to get smart information on how to best produce wealth and better grow your business. Don’t be like the lady in the story above OR let your clients be like her. This is the ONLY place to get truly useful information on ways to grow your business better AND learn of the smartest financing options for business owners and entrepreneurs ready to produce additional wealth from their businesses. Now go pass it on . . . and do your small part in our economic recovery. The sky isn’t falling. There are blue skies ahead and bigger and better days, too. Now TAKE ACTION and right your ship! I wish you, your Clients, and those you know success and prosperity . . . regardless of current economic conditions.