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How to buy a retail space: Your guide to getting started

January 9, 2024 | Published by Faire

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the interior of an airy, bright, independent plant shop.
the interior of an airy, bright, independent plant shop.

For many retailers, owning their own brick-and-mortar store is a long-term dream. After building up an online business or selling in pop-ups, you may have plans for a beautiful space all your own, a vibrant community, and the chance to be fully independent. It’s an exciting stage for a retailer, but there are important logistics and financial realities you’ll need to consider before taking the plunge, and it can feel a bit overwhelming.

It’s also worth asking yourself if buying is the right move, or if leasing might be the better option at the moment. Now’s the time to get specific about what’s important to you as a business owner. How much are you able to invest in securing a space and how much of a long-term commitment are you prepared to make in your store? Do you want complete control over your space? Are you comfortable working with a landlord? Are you all right with handling plumbing mishaps and other unexpected issues? 

Once you’re clear on your goal, how do you actually start down the path toward ownership? This article will help you answer that question and break down the steps to buying your dream space. 

The benefits of owning your commercial property  

While ownership might feel like a big step, it comes with a number of benefits—from the ability to make your space completely your own to the security of knowing that no one can take it away from you. Owning your own space can unlock huge potential for your business. 

Stability 

If you are renting, your landlord can decide at any time not to renew your lease. They can also sell the building to a new owner—who can claim the space for themselves or even tear it down. Ownership provides ongoing control over your property. Knowing you have a space for as long as you want lets you really settle in and make long-term plans for the future of your business. 

Customization 

When your space is your own, you can change it however you see fit. Do you want to put up teak wall paneling in your mid-century modern furniture store? You can. Does your cat café need an intricate system of cat trees and scratching posts? Install as many as you like. Do you want to paint a selfie wall in your brand colors? No problem. If you own your own space, you don’t have to ask anyone’s permission to redecorate or renovate. 

Predictable monthly cost

While interest rates and property taxes can fluctuate somewhat over time, your ongoing monthly costs are a lot more predictable when you buy. As a renter, your landlord can raise your rent any time your lease is up, which makes planning less concrete. 

Equity Buildup

Your monthly mortgage payments will decrease over time as you pay off your debt—eventually, you could pay your building off entirely. This allows you to build equity over time. Also, as property values appreciate, your overall investment can grow. This appreciation could mean a profit for you if you sell one day or choose to expand your business.

This breakdown below can help you ask the right questions and compare your options:  

Leasing Buying
Qualification requirements Credit check, business plan, approval from landlord Credit check, business plan, approval from bank or other financial institution
Upfront costs Typically one to three months of rent Anywhere from 15% to 50% of the full price of the building
Ongoing costs Rent, utilities Mortgage payment, utilities, property taxes, and upkeep
Available tax deductions Rent payments Interest payments, property taxes, overall depreciation
Permits Landlords may handle certain permits Owner responsible for all permitting
Continuity Landlord could decide not to renew lease Building remains in owner’s hands as long as payments are being made
Exit strategy Lease will need to expire (or be broken) in order to relocate or close the business Building will need to be sold or leased (or sit empty) in order to relocate or close the business

How to fund your store purchase   

One of the most important steps to owning your own store is securing funds for your new business. Unless you have access to large sums of capital, this will likely mean taking out a loan. 

There are several different approaches:

Traditional lenders

Securing a commercial mortgage from a bank or credit union offers several advantages. These institutions often provide competitive interest rates, longer repayment terms, and the stability of a trusted financial partner.

Government lenders

Government-backed programs, such as the Small Business Administration (SBA) in the US, or the Business Development Bank of Canada in Canada, can be great options for buying a commercial retail space. They provide accessible financing with favorable terms, lower down payment requirements, and increased flexibility. 

Exploring options specifically under Article 7(a) of the Small Business Act can offer accessible financing with favorable terms. Programs like these are designed to aid small businesses in acquiring loans through government backing, ensuring that smaller enterprises have the necessary support to thrive.

Private lenders

Private lenders are non-institutional partners for commercial real estate financing. Private lenders are more flexible, approve faster, and support unconventional projects. These lenders often offer higher mortgage rates and require larger down payments.

Owner financing

With owner financing, the property seller also acts as the lender, with the buyer making payments directly to the seller instead of obtaining a traditional mortgage. The benefits include flexible terms, potential lower down payment requirements, and a streamlined process. It can also foster a collaborative effort between past and present owners to ensure the new venture is a success. 

Paperwork you’ll need to apply for financing

No matter what funding sources you decide to explore, you will need to be able to show on paper that your business is a worthwhile investment. While specific requirements might vary from lender to lender, you should pull together the following documents. 

Business plan 

A well-crafted business plan isn’t mandatory like permits or tax returns, but it’s a vital road map that highlights a business’s potential with solid facts backing it up. It’s important for informed decision-making and successful fundraising efforts. Be sure to outline your business goals, financial projections, market analysis, and strategies for success. Include an executive summary, company description, market research, organizational structure, product or service details, marketing and sales strategies, funding requirements, and financial projections. 

Financial statements

Current income statements, balance sheets, and cash flow statements give lenders information about your financial health, allowing them to assess your ability to manage debt and create revenue.

Credit history

Personal and commercial credit histories are important to determine how risky it might be to invest in your business. A solid credit history boosts your trustworthiness and raises your chances of loan acceptance.

Property information

Most lenders will want to know detailed information regarding the commercial property, such as location and size. A professional property assessment should also be included. This will give an unbiased estimate of its value, which helps lenders determine the loan amount based on the current market value of the property.

Tax returns

Personal and corporate tax returns from previous years provide information about your financial history, allowing lenders to assess your income stability and tax responsibilities.

Steps to buying a space

Financing is crucial, but there are other key tasks to complete on your path to becoming a store owner:  

1. Make a workback

Workback schedules are calendars that mark important dates in your buying process, from start to finish. You’ll plot your projected time doing research and getting permits, all the way up to your closing date. A workback schedule keeps things in order, reduces problems that come up out of the blue, and acts as a strategic road map.

2. Assemble a team

Building a competent team is vital when purchasing a commercial retail space. A skilled real estate broker helps in property selection, while an accountant assesses financial implications. A lawyer ensures legal aspects are sound, a contractor evaluates property conditions, and a home inspector identifies potential issues. This team will help you streamline the buying process, mitigate risks, and provide expertise in their respective areas.

3. Research the location

One of the biggest choices you will make for your brick-and-mortar store is deciding where it should be. It is crucial to do extensive research on potential locations of your retail store. Look at the amount of foot traffic and the ease of your commute, and predict if the location’s desirability will rise or fall. Think of the businesses in the vicinity as possible partners or rivals and see if your target customers spend time in the neighborhood.

4. Research the building

On top of learning as much about the area as possible, you should also study the history of the building you are thinking of buying. Make sure you know how the building has been zoned, what permits were issued before—and which were turned down. Also, what is the community’s outlook toward the building? Will your business be adding a new service to the area or taking one away? This will impact how your potential local customers feel about your new venture. 

5. Gather your permits

To operate lawfully, you must receive the required licenses from local authorities, which means you must apply for permits. This procedure guarantees that zoning restrictions, construction codes, and other legal criteria are followed. 

Start getting permits for the renovations you want to do on your new store right away. Proper due diligence at this point ensures a legal and trouble-free operation in the newly acquired retail space.

With all this information in mind, you’re well on your way to starting your journey to store ownership! By preparing thoughtfully and surrounding yourself with a solid team, you’re one step closer to achieving your goal. 

Are you a new retailer? Read more about Open with Faire and learn how to apply for up to $20,000, with 60-day payment terms, to stock your new shop.

New to Faire? Sign up to shop, or apply to sell.

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