What is the Minimum Down Payment for a Commercial Property?

commercial real estate down payment

Small business owners often assume that owning commercial property is unattainable because many conventional real estate loans require a 20-40% down payment. However, what if we were to tell you that there is a program specifically designed to help small businesses buy commercial property with a little as 10% down! The Small Business Administration (SBA) 504 loan program is an affordable option for small business owners to acquire fixed assets—land, buildings, construction renovations, and even equipment upgrades.  The SBA 504 loan with its low upfront costs, coupled with other favorable terms, can make owning a new commercial property for your business a reality.

Low Down Payments with SBA 504 Program

The 10 percent down payment is one of the best benefits of the SBA 504 program.  In some cases, such as a single use property, or if the business is less than two years old, owners may be required to provide a 15% down payment.  Yet in either scenario, the minimum down payment is significantly less than the 20-40 percent required for a conventional loan.

For example Roebbelen Contracting , a commercial construction company, recognized that they could not afford the upfront costs of conventional real-estate financing.  Instead, they took advantage of the 504 program’s low down payment to secure their commercial property.

“What appealed most to us about SBA 504 Financing was the 10 percent down payment,” Roebbelen COO Rob McLean explained, “If we had to come up with a down payment of 30-40 percent, it may not have made sense for my business.”

What are other Benefits of the 504 Program?

Long-term, Fixed, Interest Rates

Market instability or inflation expectations often cause an increase in monthly payments for many property owners.  The good news is that the SBA 504 loan is unaffected by market volatility. The 504 program allows borrowers to finance the purchase of their commercial property with below-market, long-term fixed interest rates.  Ultimately, 504 borrowers can hedge against rising interest rates and stabilize their occupancy costs for the entire life of the loan.  Business owners who know their occupancy costs can more easily budget and focus on future financial growth.

No additional Collateral Needed

The only collateral you will need is the asset you are purchasing.

No Balloon Payments!

When a commercial real estate loan entails a balloon payment this means you will have to pay a large sum at the end of your loan’s term OR refinance your loan.  NOT with the 504 loan –borrowers avoid this requirement altogether.

Equipment Financing

In addition to the acquisition of commercial property, the SBA 504 loan program also allows business owners to finance equipment and other fixed assets, such as fixtures, furnishings and machinery with a service life of at least 10 years. Some equipment financing examples include: commercial printing equipment, medical & dental machinery, and gym equipment.

Is the SBA 504 Program Right for You?

Qualifying for a 504 loan isn’t as exclusive as you might imagine. In fact, one of the best aspects of program is nearly all U.S. for profit businesses for qualify for the 504 loan.  The purchaser 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.

504 Loan Comes with a Team of Experts

The 504 loan is administered by a Certified Development Company (CDC) such as TMC Financing. A CDC is a nonprofit organization built to support economic development within its community through the SBA’s 504 loan program. CDCs guide business owners through the entire loan process and act as the owner’s advocate throughout the life of the loan.

CDCs can provide a prequalification analysis to small business owners, so they know their purchasing power and can act fast when they find the right opportunity.  A prequalification letter can give you a leg up over other offers. In the competitive Bay Area market, this can make or break a deal.  TMC can complete a letter within 48 hours

About TMC Financing

TMC Financing is one of the nation’s top-ranking CDCs and a Premier Certified Lender with the SBA. If you are thinking about buying your own commercial property, talk to one of our local 504 loan experts. Regardless of where you are in the process—whether you have a building picked out or are just hearing about the 504 option for the first time—TMC Financing can help guide you through the next steps, from the prequalification process through the duration of your loan.