Financing a New Yard or Office for Your Construction Business

When It's Time to Own Your Space

Growing construction companies eventually outgrow rented spaces. Whether you need a larger equipment yard, dedicated shop space, or a professional office, purchasing commercial property provides stability, builds equity, and often reduces long-term costs.

For many contractors, real estate becomes a significant wealth-building tool alongside their construction business. Monthly mortgage payments build equity instead of disappearing into rent, and property values typically appreciate over time.

Types of Construction Business Properties

Construction companies typically need some combination of office space for administration and client meetings, shop space for equipment maintenance and fabrication, equipment yard for storing machines and materials, and warehouse space for materials and inventory.

Some properties combine all these uses, while others may be specialized. Your financing options and terms depend partly on the property type and intended use.

SBA 504 Loans: The Best Option for Property Purchase

SBA 504 loans are specifically designed for real estate and major equipment purchases. They offer the lowest down payments and longest terms available for commercial property, making them ideal for construction companies.

How SBA 504 Loans Work

SBA 504 loans have a unique structure involving three parties: a conventional lender provides 50% of the project cost, a Certified Development Company (CDC) provides 40% backed by the SBA, and you provide 10% as a down payment.

The CDC portion has a fixed rate for 20-25 years, protecting you from interest rate increases. The conventional portion may be fixed or variable depending on the lender.

SBA 7(a) Loans for Smaller Properties

For properties under $1 million, SBA 7(a) loans offer a simpler structure than 504 loans. You work with a single lender, and the process is typically faster.

Terms can extend up to 25 years for real estate, with down payments of 10-20%. Interest rates are variable, typically Prime + 2.25-2.75%.

Conventional Commercial Mortgages

If you have substantial equity or prefer to avoid SBA requirements, conventional commercial mortgages are available from banks and credit unions. These typically require 20-30% down with terms of 5-20 years.

Many conventional loans have balloon provisions, meaning the loan must be refinanced or paid off after a certain period (often 5-10 years) even though payments are calculated on a longer amortization.

What Lenders Evaluate

Commercial real estate lenders examine both your business and the property itself:

• Debt service coverage ratio (DSCR): Can your business cash flow cover the mortgage payment?
• Business financials: 2-3 years of tax returns and financial statements
• Personal credit: Most loans require owner guarantees
• Property appraisal: Is the purchase price supported by value?
• Environmental review: Particularly important for industrial sites
• Down payment source: Must be documented and seasoned

Qualifying Your Business

Lenders typically want to see a debt service coverage ratio of 1.25x or higher, meaning your business generates $1.25 in cash flow for every $1.00 in loan payments. They'll also want at least 2-3 years in business and stable or growing revenue.

If your business is newer or financials are tight, you may need a larger down payment or additional collateral to qualify.

Environmental and Zoning Considerations

Construction company properties often have environmental concerns—previous uses may have contaminated soil, or your intended use may require environmental permits. Lenders require Phase I environmental assessments and sometimes Phase II testing.

Verify zoning before making offers. Equipment yards and shops have specific zoning requirements that vary by municipality. Getting a variance after purchase can be difficult and expensive.

Build vs. Buy Analysis

Sometimes the best property for your needs doesn't exist, and construction becomes the better option. SBA loans can finance construction costs, though the process is more complex.

Compare total costs including land, construction, carrying costs during construction, and potential delays. Existing properties offer faster occupancy but may require modifications to suit your needs.

Timeline and Process

Commercial real estate purchases typically take 60-120 days from offer acceptance to closing. SBA loans add time for government approval but not dramatically so.

• Property search and offer: Variable
• Loan application: 1-2 weeks
• Appraisal and environmental: 2-4 weeks
• Underwriting: 2-4 weeks
• SBA approval (if applicable): 1-2 weeks
• Closing: 1-2 weeks

Making the Investment

Purchasing property is a significant commitment, but for established construction companies, it's often the right move. Building equity, controlling your space, and eliminating landlord uncertainties provide both financial and operational benefits.

Start conversations with SBA lenders early to understand your purchasing power. Many will pre-qualify you before you find a property, helping you search with confidence.