Business opportunities can be analyzed at least two ways. One might be called the Latest Bulletin Theory, in which a businessperson reacts to each piece of news that has the potential to upset long-term plans and inhibit risk taking. Another might be called the Steady As She Goes Theory, in which a businessperson believes enterprises with good plans and steady management will continue to succeed, because they always have.

Take the decision to purchase commercial real estate. Bulletins mitigating against a purchase include the unsteady state of the current economy, related terrorism worries, and the already seemingly top of the market price for real estate of any description. A businessperson with a sunnier disposition might look at the above factors and respond, “There’s always a recession early into a new decade, we may have terrorism on the run, the rise in real estate means the purchase of an automatically appreciating asset, and interest rates probably can’t get any lower.”

The prime lending rate is the lowest in a generation, reports Mark Tagwerker, senior vice president of real estate and credit administration for California Bank & Trust. “Going back to 1976, the prime was around 7 percent,” he says. “It was at 20 percent in April of 1980, 10.5 percent in 1985, 10 percent in 1990 and is currently around 4.75 percent.”

Oh, there’s property to be acquired, carefully, because a business could lose an arm or two buying real estate.

There’s “a little bit of an excess of inventory of commercial property, millions of square feet available for lease,” says Frank Mercardante, president and CEO of North County’s Southwest Community Bank. “That means lease rates have come down, so lessees have two alternatives — try to renegotiate their lease or buy.”

Mercardante says banks are in a lending mood.

“Lenders with excess liquidity are looking to lay that money off,” he notes. “That puts pressure on keeping rates down and cutting some of the fees perhaps, in a stable but somewhat weakened commercial real estate market.”

Bruce Ives, president of East County’s Cuyamaca Bank, agrees, to a degree. “If the business has sufficient cash flow and can maintain a lease payment, you can purchase for very similar payments as a lease would be.”

But, Ives cautions, “You’re in a real estate market that has substantially appreciated over the last three years, so you’re really getting in at the top of the market,” he adds. “You’re not finding the great deals you could find a few years ago. The dilemma for people who own real estate and want to sell and 1031 exchange (in which the seller has 60 days to purchase a new property to avoid capital gains tax) into another piece of property is that it sounds like a good idea until you start looking for the next piece of property and realize you can’t find anything.”

In the economy of the 1990s, commercial property values appreciated as much as 15 percent to 20 percent per year. Ives says even in a soft economy, commercial real estate will appreciate by 5 percent to 10 percent a year.

The limited supply and high demand for commercial properties are leading to a buying competition similar to residential housing, says Marty Spuehler, vice president and SBA department manager at San Diego National Bank. “There’s a tight supply of light industrial buildings in San Diego,” he notes, leading to a “substantial increase in prices.”

Properties out there are being bid up, like the 30,000-square-foot industrial building his client got aced out of.

“Our guy got bumped by another buyer,” Spuehler says. “There’s a lot of competition for what’s out there and not a lot coming on line. As fast as properties come out they are snatched up at prices we would not have expected a year or two ago.”

Although they may differ on what’s available and how much it will cost, lenders are pretty much in agreement on what they’re looking for in a buyer.

“We’re looking for a business that’s been around and has a good track record,” says Mercardante. “We look at the sector; can it survive a downturn or terrorist attack that might affect the business climate. For a tourist type business, we’d be looking for secondary sources of income since tourism can be affected by terrorists.”

Generally, lenders say they want to see debt service coverage on cash flow in the 120 percent to 135 percent of overhead range. That means if a company has $10,000 in monthly expenses, including the new loan, the bank wants to see gross revenues of $120,000 to $135,000. In the case of non-SBA loans, the ratio could be much higher.

A good credit record, reputation for integrity and know-how in the business couldn’t hurt, lenders agree.

Non-SBA loans also typically carry higher down payments (20 percent to 25 percent) and additional sources of collateral (such as business assets and a personal residence). Also, remember that SBA loans require the purchaser to occupy at least 51 percent of the space.

Tagwerker says CB&T also looks at the lease potential of the property to be purchased, just in case the bank has to take it back.

If a business can qualify, though, ownership has built-in advantages.

“Let’s say there’s an immediate need of 50 percent to 60 percent with the understanding that as their business grows, they can expand into the other space,” says Tagwerker. Even before the business is ready, though, “there’s income coming in from other portions of the building.”