NNN financing, also referred to as triple net financing or sale-leaseback financing, is a style of financing in which the borrower sells an asset to the lender and then leases it back for a set period of time. Commercial real estate properties like retail stores, office buildings, and industrial warehouses frequently use this type of financing.

The process of borrowing money from a lender, such as a bank, credit union, or online lender, and paying it back with interest over time is known as traditional lending, on the other hand. Traditional lending is frequently used for many different things, such as starting a business, purchasing a home, and financing a car.

Which financing option is thus best for you? Here are some things to think about:

1. Financial goal: Traditional lending is more adaptable and can be used for a wider range of financial goals, whereas NNN financing is typically used for commercial real estate properties. NNN financing could be a good choice if you require financing for a piece of commercial real estate. Traditional lending may be a better option if you need money for something else, like a personal loan or a small business loan.
2. Asset ownership: When using NNN financing, you at least temporarily relinquish ownership of the financed asset. Traditional lending allows you to keep ownership of the financed asset. Traditional lending might be a better choice if you want to keep ownership of the asset. NNN financing, however, might be a good choice if you’re prepared to cede ownership of the asset in exchange for financing.
3. Repayment conditions: NNN financing is typically set up as a lease with a predetermined number of fixed monthly payments. On the other hand, traditional lending typically entails a loan with set monthly payments and an established interest rate. Depending on the lender and the type of loan, traditional lending conditions may be more lenient. NNN financing might be a good choice if you value stability and prefer fixed monthly payments. Traditional lending might be a better option if you want more latitude in your repayment terms.
4. Creditworthiness: In order to qualify for traditional lending or NNN financing, you typically need good credit. However, since the lender is financing the asset rather than simply lending money, the requirements for NNN financing might be stricter. If your credit is bad, traditional lending might be a better choice. NNN financing, however, might be a good choice if you have good credit and are searching for an alternative to conventional lending.
5. Collateral: Since the asset being financed itself serves as collateral, NNN financing typically does not call for it. In the case of conventional lending, you might be asked to offer collateral, like a house or a car, to secure the loan. NNN financing might be a better choice if you don’t have any assets to pledge as collateral or don’t want to. Traditional lending, on the other hand, might be a good choice if you are prepared and willing to offer collateral because it frequently comes with more lenient interest rates and repayment terms.
6. Cost: NNN financing may end up costing more in the long run because the lease’s interest rate is typically higher than that of a traditional loan. NNN financing, however, might be more cost-effective in the short term due to lower monthly payments. In the long run, traditional lending may be more economical because the interest rate may be lower. When making your choice, it’s crucial to take any up-front fees or closing costs into account as well as the overall cost of financing.
7. Tax advantages: NNN financing may have tax advantages since the lease payments made under it might be deductible. Depending on the purpose of the loan and the type of collateral used to secure the loan, traditional lending may also provide tax advantages.

Overall, both traditional lending and NNN financing are good choices for funding a range of needs. The best option for you will depend on your unique situation, including the financing’s goal, your creditworthiness, and your capacity for putting up collateral. To choose the best form of financing for you, it’s crucial to carefully weigh all of your options and consult a financial expert.

F2H Capital Group is a debt advisory firm specializing in negotiating the best terms for your commercial real estate projects. The company offers a range of financial products and services, including fixed loans, bridge loans, and construction loans across all asset types. Please contact us for any of your financing needs.