A common question among franchise owners is: should I buy a building for my franchise? In today’s market, a commercial real estate purchase may seem intimidating, however, there are many advantages to property ownership.
By buying a building for your franchise, you can renovate the property freely to accommodate your business. You would be the one to benefit from those tenant improvements, not your landlord. Additionally, you will no longer be subject to volatile lease rates. Your occupancy costs would be stable and long-term financial planning could begin.
Despite the obvious advantages, many franchisees believe that making the switch from tenant to owner is unobtainable or too expensive. There is a solution – the SBA 504 Loan Program.
The Small Business Administration’s (SBA) 504 Loan Program is an accessible and affordable real estate financing solution for franchisees looking to acquire property. The 504 loan allows you to finance the purchase, construction, or refinance of commercial real estate with long-term, record low, fixed, interest rates.
Many franchise owners who are considering buying a building, choose SBA 504 real estate financing because the benefits are more attractive than what conventional financing typically offers.
The SBA 504 Advantage
The low down payment. The low down payment is one of the largest advantages of the 504 Loan Program. Unlike conventional loans that often require a 20-40 percent down payment, the 504 loan typically requires 10%.
This is what makes the 504 Loan Program such a great option for franchisees. The 10% down payment not only reduces your initial upfront cost, but also allows you to retain working capital to cover recurring monthly franchise debts.
Below-market, FIXED interest rate. The SBA 504 Loan Program’s interest rates for owner-occupied real estate is at an ALL TIME LOW. The rates are currently 2.40% fixed for 25 years, the lowest in the entire history of the program. For franchisees who are done battling continuous rent increases, done asking the question – should I buy a building for my franchise? Now is the time to secure these low rates.
Long term. The 504 rate has loan options of 10-years, 20-years, and 25-years. It is fully amortized through the life of the loan, meaning there is no balloon payment at the end of the term. The long term rates provides franchisees with affordable monthly payments and enables you to control your overhead costs.
Investment in your future. If you are a franchisee and considering purchasing commercial real estate, it is important to remember that this investment does not only create wealth for you and your business, but also strengthens your financial stability in the future. By making the decision to purchase your building through the SBA 504 program, you are protecting your business against volatile rental markets and setting your franchise up for success.
Is My Franchise Eligible for an SBA 504 Loan?
Most small businesses and franchises are eligible for a 504 Loan. You must be a for-profit business operating in the U.S. and occupy at least 51% of your purchased building. Your franchise must be listed in the SBA franchise directory, which currently includes over 2,500 brands.
CASE STUDY: Multiple SBA 504 Loans Fuel Success for FASTSIGNS Oakland
Linda Fong, owner of FASTSIGNS Oakland, utilized multiple SBA 504 loans to purchase two buildings for her business over the last 3 years.
Linda Fong grew up in Oakland, CA and is proud to call it home. However, Fong knew she was at risk of getting priced out of her beloved neighborhood. “People are discovering what a beautiful city Oakland is and they are flocking to this part of the Bay,” explains Fong. “I have seen rents double and even triple.”
Fong knew that to keep her franchise operating out of Oakland, she had to buy a building for her franchise to escape rising lease rates. Linda contacted TMC Financing who guided her through the entire SBA 504 loan process.
By utilizing the SBA 504 Program, Fong made both building purchases with only a 10 percent down payment and two very low interest rates – fixed for 25 years.
“Having this building now gives me peace of mind. I can concentrate on growing my business instead of worrying about where I’m going to be down the road. The space is mine!” – Linda Fong, FASTSIGNS Oakland Owner.
About TMC Financing
You can find out more about the 504 loan program for a real estate purchase for your franchise from one of TMC Financing’s 504 loan experts. TMC is the #1 SBA 504 lender nationwide and has funded projects worth more than $10 billion across California and Nevada. We have worked with franchise owners and business leaders for nearly 40 years. TMC can help you find the financing that is best for your franchise and are happy to provide guidance through the whole loan process. Contact a TMC Financing Loan Expert.