Should my business lease or buy its building?

Answered by Charlie Cummings, Colorado Real Estate BrokerUpdated October 18, 20262 minute read
The short answer

Buying usually makes sense when your business is stable, you plan to stay at least 7 to 10 years, and you can put about 10% down through an SBA 504 loan. Leasing makes sense when you are growing fast, need flexibility, or would rather keep your cash in the business. The best way to decide is to compare the total cost of each over the years you expect to stay.

The quick answer

Own if

Buying can make sense

  • Your business is steady and profitable
  • You plan to stay 7 to 10 years or more
  • You can put about 10% down with an SBA 504 loan
  • You want to build equity and lock in your housing cost
  • You need a building you can change to fit your work
Lease if

Leasing can make sense

  • You are growing fast or might move in a few years
  • You would rather keep your cash in the business
  • You need a location that rarely comes up for sale
  • You do not want to manage a building

How the costs compare

Leasing costs rent plus NNN charges, and rent usually goes up every year. Buying costs a down payment, loan payments, taxes, insurance and repairs, but the payment on a fixed rate loan stays the same and you build equity as you pay it down. There is usually a crossover year when owning becomes cheaper than leasing.

Ask for a side by side of both over 10 years, using a real lease quote and a real purchase price.

SBA 504, in short

A business that will occupy at least 51% of an existing building can often buy with 10% down. A bank lends about 50% and an SBA lender about 40%, with a long fixed rate on the SBA portion.

Questions to answer first

  • How many years do I expect to stay in this location?
  • How much cash can I put down and still run the business comfortably?
  • Will I need more or less space in five years?
  • Would I lease part of the building to another tenant?
  • Do I want to own the real estate when I sell or retire from the business?

Common follow up questions

How much do I need to put down to buy my own building?

Often 10% with an SBA 504 loan if your business will occupy at least 51% of an existing building, or 15% to 20% for a startup or special purpose building. Conventional loans usually need 20% to 35%.

Can I buy a building and lease part of it out?

Yes. With SBA 504 your business needs to occupy at least 51% of an existing building, and you can lease the rest to help cover the loan.

Is it better to own the building in a separate company?

Many owners hold the building in its own LLC and lease it to their business. Talk to your CPA and attorney about what fits your situation.

This page is general information, not lending, legal or tax advice. Programs, limits and terms change, and every situation is different. Talk with your lender, attorney and CPA before you decide.