San Diego, California is one of the largest cities on the West Coast, and the eighth biggest market in the entire U.S. Due to San Diego’s booming economy, many small businesses need to explore loan options that will help them thrive and compete in such a dense market. Business owners may find themselves researching not only which financing option best suits their needs, but also how to adequately spend the funds. Small Business loans can be used for a variety of reasons including investing in new equipment, cover unexpected expenses, or in some cases financing the purchase of commercial real estate.
The SBA 504 Program, while not well known, is an excellent option for San Diego small business owners looking to finance the purchase of a building for their business. The Small Business Admiration’s (SBA) 504 loan is specifically designed for small business owners. The 504 program allows business owners to purchase a building for their business with as little as 10 percent down. In addition, the interest rate is below-market and FIXED for 25 years – and the best part is MOST small businesses are eligible.
SBA 504 Real Estate Financing vs. Conventional Financing Options
As a San Diego business owner, it is important to understand the differences between the various financing options available. Factors that one should consider include the following:
- The size of the down payment
- The term of the loan and its amortization
- The presence or absence of balloon payments
- Whether the interest rate is fixed or variable
The terms of a conventional loan can vary depending on the lender, but the down payment can be anywhere from 25-40 percent. Another challenging element of a conventional loan are balloon payments. A balloon payment occurs when the amortization exceeds the term of the loan. In other words, borrowers must pay a large sum of money at the end of the loan’s term OR refinance the loan.
Conversely, the SBA 504 loan program allows small-business owners to finance commercial real estate and other fixed assets with long-term, below-market, fixed interest rates, with NO balloon payments. The 504 loan is fully amortized for 25 years and no additional collateral is required. Ultimately, business owners can pay for their facility over a long term with predictable monthly payments.
Why Business Owners Choose Property Ownership
Purchasing real estate for your business is an economically smart decision, especially in San Diego where property values continue to increase. The 504 program provides affordable financing that allows small business owners to invest in their facilities and reap the following benefits:
Stability and peace of mind. Business owners can operate knowing that they will never get priced out of their building. Purchasing real estate protects business owners against rent increases or displacement that may result from rising San Diego property values.
Gain Equity. Equity that comes from buying real estate can be monetized to fund further expansion of a business or can be used towards a retirement strategy. Small business owners are primarily concerned with growing their business and tend to put most of their earnings back into the business, rather than pay themselves a big salary or save for their own future. Renting out your building, or selling it, once you retire, can provide a substantial nest egg for retirement.
Benefit from improvements. Most business owners need to update or upgrade the space they occupy. With renting, your landlord gets to reap those benefits. Own the building and your investments positively impact you, not your landlord.
How Race Car Dynamics Inc. Utilized SBA 504 to Expand in San Diego
Race Car Dynamics (RCD) is a family-owned business who has built its reputation on 40 years of innovation and quality. This company manufactures and distributes superior auto parts designed and made in the USA. “We’re always in search of new concepts” says RCD owner Judy Asbury. “We pride ourselves on understanding the marketplace and the trends that are revealing themselves. RCD’s team has the vision to design develop and produce cutting-edge products.”
Prior to obtaining their SBA loan and purchasing their building in San Diego county, RCD was operating in three separate locations. This purchase allowed the company to consolidate operations and increase efficiencies which Asbury says improved their bottom line. “Buying a larger building enabled us to provide room for growth in the future,” says Asbury. “We’ll lease out the excess space until we need it.”
Ultimately, SBA loans are a great option for growing San Diego businesses looking to stabilize their occupancy costs and secure future growth. Companies can achieve increased capacity and production by buying better equipment or purchasing space better suited for their needs. If you are small business owner looking to expand your business, contact a TMC Financing loan expert to find out more.
Does Owning Make Sense for Your Business?
TMC Financing is a Certified Development Company that administered 504 loans on behalf of the SBA. TMC operates in California and Nevada and would be happy to provide a free consultation to see if a building purchase makes sense for you and your business. Contact us today for more information or to see if you are eligible.