The SBA 504 loan is specifically designed to help small businesses buy, construct or improve commercial buildings. It can also be used to buy equipment or machinery with a useful life of at least 10 years.
The 504 Loan Program is the SBA’s flagship program. It was created so small business owners could buy a building for their business, realizing that small business growth is what ultimately fuels our economy. Many small business owners don’t realize that buying a building is within their reach – but with this program it is!
Key Advantages of the SBA 504 Loan
- Low down payment – Small business owners can buy a building with as little as 10 percent down. Certain circumstances, such as the involvement of a single use property or if the business is less than two years old, may require a down payment of 15%. In either case, the down payment is considerably less than a conventional loan, which can be as high as 40%. This low down payment allows small businesses to conserve their cash.
- Below market, FIXED interest rate – The SBA 504 loan allows you to lock in a below market rate. The SBA 504 rate has been below 5.5% for the past four years. In our current climate of rising rents, this gives you peace of mind knowing your rate won’t fluctuate due to lending conditions. You know your occupancy costs will not increase, allowing you focus on your business and plan for the future.
- Long repayment term – The 504 Loan is fully amortized for real estate loans for 25 years, making loan payments more affordable and improving monthly cash flow.
- No balloon payments! Balloon payments mean you’ll have to pay a large sum at the end of your loan’s term OR refinance your loan. This headache is avoiding with the 504 loan.
- No additional collateral is required. The only collateral you need is the asset you are acquiring.
One of the best aspects if the 504 loan program is that most small businesses are eligible! Your business must be for profit and you must occupy at least 51 percent of the building. If you are financing the construction of a new building, you must occupy at least 60 percent of the building.
Consider the benefits of owning
Buying a building is one of the best decisions you can make for yourself and for your business and utilizing an SBA loan to do so will offer you the best deal. If you have to write a rent check each month, wouldn’t you rather write it to yourself? Investing in real estate benefits you and your future – rather than supporting a landlord with your monthly payments.
Other than labor, occupancy costs are a business owner’s largest expense. In many communities, lease rates have increased 30 percent, 50 percent or even 75 percent over the past five years. Owning a building is the best way to stabilize those costs, put you in control and give you some peace of mind. By locking in a low, fixed rate, you know your occupancy cost for the life of the loan. This allows for stability and the ability to accurately plan for the future.
Buying a building now can fund your retirement later. By owning your building, you have an asset with a value beyond your business. When you retire, you can continue to lease out the building and use the payments as your income source. You can also sell the building for a nice nest egg.
In addition to locking in your occupancy costs long term, owning your building will give you tax benefits, appreciation.
For more information on owning vs leasing, check out our comparison.
If you have any questions regarding buying a building with an SBA loan – contact us for a free consultation. We can also prequalify you within 48 hours with only a few documents.