Lease or Buy a Site: How to Make the Right Call for Your Small Business

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Katie Fleming

Co-founder and COO of Owner Actions

A empty storefront that could be acquired by owners who choose to lease or buy the site

Location is a factor you can’t afford to get wrong. As a new owner, it’s important to spend time assessing your market, studying traffic patterns, and finding the locations where your target customers are already spending their time. Within the best pockets of your target market, you may find vacant properties that could suit your small business. But before you proceed with any of them, you’ll need to decide whether it’s a better investment to lease or buy a commercial property.


Why lease? Why buy?

There are pros and cons to buy or lease commercial property for your business. When you buy a building—or land on which you plan to place a building—you can save money in the long term and avoid some of the pain points of being a tenant.

Here are some other merits of buying a site:

  • Avoiding premium lease prices
  • Flexibility to make improvements to the site
  • Not having to share amenities like parking lots with other tenants
  • Not having to follow tenant rules that limit the effectiveness of your site
  • The opportunity to build equity
  • The ability to reduce your income taxes through depreciation


There are merits to leasing a site, too. These include:

  • Not having to spend a hefty dollar amount upfront to cover the costs of a commercial unit
  • Having the flexibility to choose a new site at the end of your lease without waiting for a buyer for your current space
  • Not having to work through zoning concerns, provided that a site is already zoned for commercial operations
  • Not shouldering the responsibility for maintaining landscaping, parking lots, or external parts of your building


I’m interested in buying. What do I need to know?

Buying a property is a relatively straightforward process, provided you know how much you can afford to spend and your options for attaining financing.

Most business owners who purchase their property choose one of the following financing options:

SBA 7(a) loan

Many lenders offer small business loans that are backed by the U.S. Small Business Administration. Through these loans, business owners can attain up to 90 percent of the cost of their project and secure repayment terms of up to 25 years.


To learn more about SBA 7(a) loans, read our guide, Small Business Financing 101: SBA Loans.

CDC/SBA 504 loan

In a partnership with a certified development company (CDC), the SBA also offers 504 loans to cover the purchase of existing buildings, the purchase of land or land improvements, the construction of new facilities, the renovation of existing facilities, and the purchase of long-term machinery. Similar to a 7(a) loan, this option helps owners attain up to 90 percent of the cost of their project and secure repayment terms of up to 20 years.


You can learn more about the 504 loan program in our guide to SBA loans.


Lenders may also offer commercial loans for business owners who plan to purchase an owner-occupied office building, retail center, warehouse, or other commercial property. These loans sometimes require higher down payments than SBA-backed options. They can also be slightly more difficult to attain.


If you would like to learn more about commercial mortgages, read our guide, How Commercial Real Estate Loans Can Help You with Your #LocationGoals. To attain a commercial mortgage, you should speak with a bank or credit union lender in your area.

bridge loan

Some lenders offer short-term commercial bridge loans to owners who want to buy a commercial property and refinance it into a mortgage at a later date. Most commercial bridge loans offer terms between 6 and 36 months and require a down payment of at least 10 percent of the loan to value.


If this option is one you’d like to consider, read our article, Should a Commercial Bridge Loan Be Part of Your Financing Strategy?. Speak with a bank or credit union lender in your area to begin the loan process.

hard money loan

Some non-bank lenders offer commercial hard money loans that are secured by a borrower’s property. This short-term option allows business owners to purchase a commercial property quickly, with flexible terms, and often without checks to the borrower’s credit history. However, the interest rate on these loans is usually high. Because of this, many borrowers view hard money loans as a last-resort option and refinance their loans into a mortgage at a later date.


If you are interested in this option, you may consider online lenders who offer hard money loans or friends, family members, or local real estate investors who are willing to provide this form of financing.


With knowledge of what you can afford and your funding plans in place, you can connect with a commercial real estate agent who knows your target area and can direct you to properties that meet your criteria.

Would you like to connect with a commercial real estate agent in your market? Click the Connect button below to get started:


What do I need to know about leasing?

Compared to a real estate purchase, leasing requires far less money upfront. Here, you’ll cover a security deposit, and you might make the first and last month’s payments.

Lease contracts tend to be cumbersome and include terms that you should read carefully. Be sure to review any lease contract you consider with an attorney who knows local laws and is experienced in lease terms negotiation. Specifically, you’ll want an attorney who can help you:

  • Save on common area maintenance fees or signage fees
  • Negotiate down built-in rent increases
  • Lift cumbersome restrictions and terms
  • Request improvements to the property at no cost to you



Need an attorney to review your lease contract? Consider working with Contract Counsel. Check out their website here.


What’s next?

Decided whether to buy or lease the commercial property you need? Once you do, you can shift your focus on the other parts of the site selection process. These include studying your territory, selecting a location, and making improvements to a site. We can help you with every step of this process. Log into your owner’s portal for free, personalized guidance that will help you make your venture a success.

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