Expanding a Manufacturing Business with an SBA 504 Loan

Sometimes it’s a challenge for a manufacturer to keep up with demand. If that’s your problem, congratulations! Now it’s time to take stock of your operations and plan your expansion. You are now at the point where many businesses either revamp their existing facilities or purchase larger locations to accommodate their growth. For many manufacturing companies, this large scale decision might seem out of reach financially, when it is actually well within reach, thanks to the Small Business Administration’s (SBA) 504 loan.

Navigating Your Expansion Capacity

If your product is in such demand that you can’t keep up, there are a number of ways you might want to expand your capacity. The first thing to consider is the scope of the expansion you need.

You may be able to meet higher production goals by hiring more employees and adding shifts, or you may need to buy additional equipment. In the latter case, you will need to ensure your facility is large enough or can be restructured to accommodate this expansion. If you do not own your building, this may be impossible or a bad financial move.

For many, buying the building you’re currently renting would be the ideal solution. There are several reasons for this, including:

  • Being free to alter or expand the facility at will, including making it more energy efficient for incentive purposes
  • Avoiding the complicated and often detrimental process of relocation
  • Exchanging erratic or fluctuating rent payments for steady, cost equivalent mortgage payments
  • Benefitting from the accrued value of owning a building

The Benefits and Drawbacks of Multiple Locations

It is important to plan carefully when you are ready to implement expansion plans. You might find that opening a second location is the solution you need to accommodate greater demand. For example, TMC client Choicelunch, a maker of school lunches based in the Bay Area, used a  504 loan from TMC Financing to purchase a second facility in Southern California. As part of their expansion, they added 29,000 square feet of production facilities and hired about 60 new employees. Because they were able to purchase a facility with room to grow,  Choicelunch will benefit from supplemental rental income to provide additional working capital and have space to expand with the success of the business in the future.

There are potential drawbacks to operating locally from more than one building, however. Stephen Pixley, a TMC Financing client and CEO of AutoCrib, a maker of industrial vending machines, recounted the challenges he faced when his company was operating out of three separate buildings. “Whatever you needed was always someplace else. Once we added more lines and bought another company, we needed more space. We were adding staff so we needed to get everything under one roof.”

Pixley took out a second 504 loan to purchase a new, larger building, allowing him to locate all of his production capacity in one place and add 20 new employees to his staff at the same time.

How a 504 Loan Can Help You Expand

The SBA 504 loan is specifically targeted to finance the purchase of commercial real estate and long-term equipment. A 504 loan can be used for:

  • The purchase of existing buildings
  • The purchase of land and land improvements
  • The construction of new facilities or modernizing, renovating or converting existing facilities
  • The purchase of machinery or equipment with a service life of 10 years or more

Even if you aren’t in the market to buy a building, the loan can be of service. The 504 loan can be used to renovate your space, buy equipment or upgrade your existing equipment. In addition, the 504 offers great incentives for manufacturers who make energy-efficient upgrades in an effort to be more sustainable. If you incorporate measures in your project that are part of the SBA Green Energy Program, you will be eligible for an unlimited number of loans.

For small to mid-sized businesses that are growing or expanding, SBA loans are a vital source of capital for fixed asset investment, as well as advocacy and guidance. 
TMC Financing is a Premier Certified Lender with the SBA, which gives it increased authority to approve, process, close and service loans quickly. Our responsive, expert staff is ready to help every step of the way.  You can speak to a TMC loan expert to find out more about the SBA 504 loan program.

Barbara Morrison, a local small business advocate and civic leader, founded her first company TMC Financing in 1981. TMC is a Certified Development Company that provides commercial real estate financing to small business owners via the SBA 504 Loan Program. TMC consistently ranks among the top certified development companies nationwide, and has funded projects worth more than $9 billion across California and Nevada. Nearly 5,000 small businesses have benefitted from this financing, resulting in the creation of an estimated 50,000 jobs. TMC is also the No.1 SBA 504 hotel lender in the United States. Barbara is also the founder of Working Solutions, a Bay Area microlender whose mission is to provide micro entrepreneurs, particularly low-income individuals, women and minorities, with the access to capital and resources they need to start a successful business.
Barbara Morrison