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A/E/P Business Owners Have Options - Face Difficulties
December 31, 2010

The down economy presents many real estate options for the small business owner; but the tight A/E/P and banking climate might prove too difficult for many businesses to grasp the opportunity.

Owning real estate versus renting is a big decision right now, with low real estate values offering a rare opportunity for businesses to purchase property at a favorable price. But a recent study by CIT Group, Inc. says that only 6% of small business owners have purchased real estate in the past six years, while a majority of them (52%) have not even considered purchasing.

Low interest rates and a buyer’s market have contributed to investment in on-premises real estate for many business owners. However, simply because the interest rates in today’s economy are at record lows does not necessarily mean A/E/P firms are picking up the phones and calling real estate agents. Rates might be low, but the percentage of equity required as down payment has risen significantly.

The CIT Group study confirmed these difficulties, reporting that only 28% of small business owners believe buying real estate today presents a “great or substantial opportunity.”

Leasing has significant benefits for many A/E/P and environmental consulting firms. There are fewer maintenance hassles, the balance sheet does not show a mortgage debt, and relocating is easier in these times of fluctuating staff levels.

There are several lease negotiation strategies that can earn big savings for the leasing A/E/P firm. The New York Times in a November article titled “Is Real Estate On Sale?” recommends:

1) Show your landlord you are prepared to move if you cannot negotiate a favorable lease rate.

2) A small rent reduction is easy in today’s real estate climate; push for a significantly lower lease rate and terms.

3) Beware the “blend and extend” deal where the rate lowers for a short time but rises too much in the future. Pay for a good commercial realtor to negotiate for you. He knows the market better and the landlord will know you are serious about moving if negotiations fall through.

4) Don’t be afraid to rock the boat with your landlord. Landlords earn higher-than-market rent when renters get too friendly with landlords.

Furthermore, obtaining financing is more difficult than ever lately. Banks are rejecting loan applicants with anything less than perfect credit, down payment requirements are larger, cash-on-hand is tougher to assemble for down payment, and A/E/P sales are down— so many balance sheets look poor.

The CIT Group study revealed that the Small Business Administration’s (SBA) loan programs might solve many of these obstacles. The survey included 306 non-home-based small business owners from across the U.S. Twenty-three percent of small business owners surveyed said SBA loans were a good overall choice for them because there was no significant downside. Fourteen percent of respondents said their SBA loan reduced their down payment, 12% said it allowed them a lower monthly payment, and 15% said it allowed a longer repayment period.

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