Mainebiz

W W W. M A I N E B I Z . B I Z 27 S E P T E M B E R 5 , 2 0 1 6 F O C U S S TA R T U P S & E N T R E P R E N E U R S H I P O ne of the most rewarding aspects of commercial lending is help- ing businesses grow into larger, more mature enterprises. For many new and up-and-coming businesses, the fi rst step is simple: add more space. At some point, spare bedrooms and home kitchens and cramped offi ces not only inhibit capacity, but also limit a company's stature. Investing in a commercial property or renovation can help operational effi ciency as well as increase brand awareness, which in turn can help legitimize a business and ultimately lead to more sales. While fi nancing physical growth can seem overwhelming, owners who do their homework and approach their lender with a comprehensive business plan are much more likely to secure fi nancing for their expansion. With the demand for prime commer- cial real estate outstripping the supply in much of New England, lenders can aff ord to be choosy about the projects they fi nance. e following are some areas to focus on when seeking to fi nance a commercial real estate purchase or renovation: Develop a clear business plan Lenders prefer projects with a plan that articulates objectives and potential contingencies. For example, new space also means new fi xtures and equip- ment, which in turn may also mean higher energy consumption, taxes, insurance and likely added labor costs to utilize the new capacity. All of this should be off set by the anticipated increase in revenue and documented in your plan. Make this realistic so both you and your lender have a clear understanding of your fi nancial picture post-expansion or renovation. Keep collateral in mind Lenders typically do not like to extend fi nancing on a project if their lien would be subordinate to another lender, i.e. using a mortgaged property as collateral for a new purchase or renovation loan. If you do seek fi nancing from a lender diff erent from where your fi rst mort- gage is held, the new lender will most likel y refi nance the original mortgage as well. Given the current record low inter- est rate environment we see today, this may actually be advantageous. Know the property condition Especially for renovations, property con- dition and the extent of rehabilitation needed will have a major impact on the lender's decision to fi nance. If a property has signifi cant deferred maintenance, you will need to provide a detailed plan, timeline and at least three cost estimates on what it will take to bring it back to 100%, especially if you will perform the work yourself. Some lenders may even require fi nancial documentation for con- tractors to ensure they have the means to fi nish the job. ese will need to be documented by a reputable and inde- pendent inspector prior to the appraisal and closing of your loan. Sell them on you, the buyer While collateral and property condi- tion are important factors, lenders need evidence of your ability not only to manage debt, but also to manage a commercial property. Regular upkeep is required to prevent it from falling into disrepair, which could erode sales, damage your company's reputation and require costly yet preventable renova- tions. Document your property owner- ship history, with current photos if possible, accompanied by a current per- sonal fi nancial statement and at least three years of tax returns. Lenders also like to see three to six months' worth of available debt service. Have skin in the game Be prepared to put down at least 25% of the purchase price into the property in some form. is does not necessar- ily need to be all cash; combinations of equity and cash may also be acceptable. If approved, most lenders will off er terms for commercial real estate at 10 to 15 years, though some may go as long as 20 years. Ultimately, the better you can dem- onstrate how growing your business physically will help it grow fi nancially, the more confi dent lenders will be in your loan. orough research, planning and focus on the above areas will set you up for success — both in securing fi nancing for your expansion and in the long run of your new enterprise. W H, senior vice president and COO at Hampden-based C U S O B u s i n e s s L e n d i n g S o l u t i o n s , c a n be r e a ch e d a t @ . . Innovative solutions for today's business challenges. Visit Patrons.com to find an independent Maine agent near you. We've been in business more than 135 years, and continue to innovate by providing you a portfolio that offers the kind of protection your business needs — today. Insuring Maine Business — Insuring Maine People Employment Practices Liability Insurance, EPLI Equipment and Mechanical Breakdown Business Property and Liability Insurance Products You spoke. We listened. Simple and affordable checking for Maine businesses. mainesavings.com/bizwallet Bangor | Brewer | Corinth | Ellsworth | Hampden Jax Lab | Milo | North Vassalboro | Old Town Finance the physical growth of your business B Y W I L L H A T T H OW TO

• Cover