Financing Real Estate: The Benefits for Legacy Businesses

Whether you devoted decades of your life to creating a business, or you are running the business you have inherited, you want to ensure that it will continue to operate after your retirement. You may also wish for it to remain in the family—many small businesses are family run, with husbands and wives working as partners and employing their children (sometimes after they start out as young “volunteers”).

One of the best ways to ensure you have a dependable and thriving business to hand off to your successors is to own your workplace. This enhances the stability and value of your business, and also plays an important part in making your legacy company a success. A Small Business Administration (SBA) 504 loan is an affordable and accessible means of financing the purchase of commercial property.

Real Estate Enhances Your Family Business  

You need to be proactive to make your vision for the future of your company a reality. As one writer on the subject pointed out, the first step to creating a successful legacy company is giving your family a reason to continue the business. Property ownership can be a big part of that, adding a unique value component to the business  through a number of immediate and long-term benefits.

There is no need for your successors to pay rent. In the long run, owning a building is cheaper than renting it. A mortgage has a specific term, unlike rent payments. If your mortgage has a fixed rate, the payments will never increase, which I something else that cannot be said of renting.

Property ownership also gives you legal protections that renters do not have. For example, it is much harder to displace the owner of a property than a renter. Additionally, you are free to upgrade and customize your property as best meets your needs, and those improvements will add to your equity, not your landlord’s.

They can generate income from extra space. As the owner of a building, you are free to use it to your greatest advantage. The conditions of a 504 loan let you lease out unused space in your building—up to 49% of it if you buy a building and up to 40% if you build. The income from leasing can make a big contribution to your mortgage payments, and continue to provide income long after the mortgage is paid off.

It’s possible to optimize your taxes and plan for your retirement. By creating a separate legal entity to own your building, you can essentially rent your property to your own business. This has a number of advantages. It will reduce your tax burden, as your accountant can tell you. It can also provide you with security in your retirement years. By remaining the owner of the property after your successors have taken over the business, you will retain an income from the rental of the property. You will also be setting up a system that can be used by future generations for the same purpose.

You all can create equity. Real estate often increases in value. By owning your workplace, you could be positioning your business to increase in value independently of economic and market cycles. The equity in your property will also create opportunities for you or your successors to access financing that would not be available to renters.

Financing Legacy Real Estate with an SBA 504 Loan

The 504 loan is designed to help small businesses prosper by financing the acquisition of fixed assets. It can be used for the purchase of commercial buildings or land, construction of buildings, purchases of large equipment or upgrades to buildings. A 504 loan can also be used to refinance your existing commercial mortgage.

A nonprofit Certified Development Company (CDC) such as TMC Financing administers the 504 loan. These loans are granted in conjunction with a conventional lender (a bank or credit union) that provides 50% of the total project cost. Your CDC facilitates the SBA loan for up to 40% of the cost, or $5 million ($5.5 million for manufacturing projects or if your project participates in the SBA’s Green Energy Program).  You provide 10-15% of the project cost as a down payment.

The 504 has a fixed, below-market rate and a 10-, 20- or 25-year term. It is fully amortized, so there are no balloon payments. Because the conventional lender is in the first lien position in a 504 loan, its risk is limited. This makes it advantageous for conventional lenders to take part in the 504 loan program.

You can find out more about the 504 loan from one of TMC Financing’s 504 loan experts. TMC is an SBA Premier Certified Lender, and has funded projects worth more than $9 billion across California and Nevada, resulting in the creation of an estimated 60,000 jobs. With over 35 years of experience, TMC can help you find the financing that is best for you and guide you through the 504 loan process. Contact TMC Financing today.


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