Purchase Your Commercial Property Now with an SBA 504 Loan: 3 Key Benefits

Purchase Your Commercial Property Now with an SBA 504 Loan: 3 Key Benefits

If you’re a small business owner who leases commercial property, you should explore purchasing it now with a U.S. Small Business Administration (SBA) 504 loan. The SBA 504 loan program helps small business owners get long-term control over real estate occupancy costs – a benefit that’s particularly important in the current economic environment of rising rents coupled with inflation – while gaining significant financial benefits.

In addition to construction, acquisition, and renovation of commercial properties (or refinancing existing loans for those purposes), the SBA 504 loan program helps businesses in hard-to-finance or specialized sectors like retail, restaurants, assisted living, and childcare. It’s also a great option for businesses with higher real estate and fixed-asset costs, such as warehousing, distribution, and manufacturing.

Outstanding benefits for small businesses that currently lease property

Every small business owner who leases a property should look into purchasing it with an SBA 504 loan – here’s why purchasing your property now makes great business sense:

  1. The financial benefits that you gain will likely more than offset costs. If you’ve never considered buying your industrial property and equipment or have put it on the back-burner because rising interest rates have thrown your plans off course, have a conversation with a business development officer from a certified development company (CDC) in your area – and if your business is located in California, Arizona, Nevada, or Oregon, contact TMC Financing today.Current SBA 504 interest rates are still advantageous for long-term borrowers and with loan terms as long as 25 years, many business owners find that their monthly SBA 504 loan payments are on par with (and often less than) current lease payments. Unlike your lease payment, though, your SBA 504 payment won’t change over the lifetime of the loan – but your lease payment certainly will.
  2. Commercial real estate will always be an excellent long-term investment and it’s a smart financial move to make it your investment, not someone else’s. Owning your property gives you control over your business’s long-term occupancy costs and you gain significant short- and long-term financial advantages, from tax breaks and inflation hedges to potential additional income and the accumulation of equity, helping you build generational wealth.
  3. The SBA 504 loan’s flexible criteria mean that you’re likely to meet basic eligibility requirements. Your business must be for-profit and your business’s occupancy of the building must be at least 51% for existing buildings or at least 60% for new construction. Your business also has to meet basic size standards to meet the “small business” qualification. A business development officer can work through additional details or questions that you have but rest assured: Most small businesses are eligible for the SBA 504 loan program.

How SBA 504 financing works

SBA 504 loans involve a CDC and a partnering bank. Your down payment, also called owner equity, is typically 10% for most SBA 504 loans. Here’s an example of how that looks for a $2 million deal:

  • Owner down payment of 10%: $200,000
  • The SBA 504 loan covers 40%: $800,000
  • A conventional loan from a bank covers 50%: $1,000,000

Qualifying for an SBA 504 loan: Easier than a conventional commercial loan

The SBA 504 loan program was developed to help small business owners who don’t meet all the approval criteria for conventional commercial financing. These include borrowers:

  • Whose personal credit histories are imperfect, with scores that are too low or histories that are too short for conventional loans. With the SBA 504 loan option, commercial banks and CDCs work together to create a loan deal that lowers the bank’s risk while providing beneficial loan terms for borrowers.
  • Who don’t have enough owner equity to meet commercial bank minimums (typically 20-30% and as high as 40% for some types of businesses or commercial properties). Most SBA 504 deals require just a 10% owner-equity infusion (in specific cases, a 15% down payment may be required, which is still significantly lower than typical commercial real estate loans).
  • Whose businesses inherently have higher real estate and fixed-asset costs, including manufacturing, warehousing, and distribution. The SBA 504 loan program offers a $5.5 million maximum SBA 504 loan project contribution (and no maximum project cap).
  • Whose businesses are in industries that banks deem high-risk, such as restaurants and retail.

Talk to us today to learn more about purchasing or refinancing with an SBA 504 loan

TMC Financing is the leading certified development company (CDC) in the U.S., with a mission to promote economic development and job creation for small businesses in California, Nevada, Arizona, and Oregon. (If your small business is located outside of our service area, the SBA Lender Match tool can help you find a CDC near you.)

Since 1981, TMC has secured more than $10 billion in SBA 504 commercial real estate financing for 6,000 small businesses. Our team is excited to show you how an SBA 504 loan can help you, too. To learn more, contact us today.