SBA 504 Loan Offers Affordable Financing for RV Park Acquisitions
TMC Financing Facilitates $8.5 Million Purchase of Orange Grove RV Park
An RV Park in Bakersfield, California was recently purchased by utilizing the Small Business Administration’s (SBA) 504 Program. The total project cost, which included the land, the business, and equipment, totaled $8.5 million. The SBA 504 loan, which was administered by TMC Financing, allowed Orange Grove Holdings to make the acquisition with a down payment of only 15 percent.
The SBA 504 Program allows small-to-medium sized businesses to purchase real estate with a low down payment and a below-market fixed interest rate, giving business owners the opportunity to preserve cash and gain peace of mind from having a stable operating location and steady occupancy costs. It also allows businesses to roll equipment and installation costs into the total project cost so they can be financed in the same package.
“We needed additional leverage to make the acquisition work,” stated Paul Reichert, a partner within Orange Grove Holdings. “Things were easier and more manageable thanks to the SBA 504 Program. The low down payment gave us more breathing room with cash flow and now we have more cash on hand that will be used to grow the business.”
Orange Grove RV Park is a 206-unit park located on 40 acres in the quiet community of Bakersfield, with easy access to Los Angeles, beaches and mountains. The park has deluxe amenities such as a business center, dog parks, a fully equipped gym, a clubhouse, a pool with chaise lounges, a recreational room for lounging and a ‘barn’ with a kitchen and barbeque facilities.
The RV industry has been consistently growing year after year but RV manufacturers and sellers saw record-shattering sales in 2020. From retirees to digital nomads, RV life has attracted a wide variety of people and RV parks are seeing increased demand. But despite the increase in popularity, RV parks are still considered one of those ‘difficult-to-finance’ projects.
“The SBA 504 Program is most commonly known for financing traditional commercial real estate such as industrial or retail properties,” explains Jennifer Davis who facilitated the deal on behalf of TMC Financing. “But it is actually really beneficial for what we call ‘special purpose properties’ such as RV Parks. Special purpose properties are typically really challenging to finance without the help of the SBA, and can often require a down payment as high as 40 percent. The SBA 504 Program only requires 15 percent down for special use properties, compared to 10 percent for more traditional properties.”
The structure of the SBA 504 Program is what makes it possible for business owners to purchase real estate with such a low down payment. The financing is split between the SBA 504 loan (administered by a Certified Development Company such as TMC Financing) and a loan from a third-party lender. In this case, PB Capital, a division of CalPrivate Bank, provided 50 percent of the financing, TMC provided 35 percent, and Orange Grove Holdings only needed to put down 15 percent to complete the project.
In addition to the ability to conserve capital, Reichert was drawn to the SBA 504 Program because it allowed them to install new solar panels and improve their energy efficiencies.
“We added solar panels that now provide enough energy to our entire park, including our water treatment plant,” said Reichert. “Not only were we able to finance that upgrade with affordable terms, but we were able to increase our borrowing capacity because of it.”
“Working with Jennifer and the TMC team was great. Status updates were always conveyed, and the process was smooth. We’re hoping to partner again soon to refinance another property and gain the better terms of the 504 loan.”