Small Business Retirement Planning Through 504 Loan Options

Small business owners work hard their whole lives, putting everything they have into their businesses. Retirement should be a time for them to relax and enjoy the fruits of their labor. But a recent survey by TD Bank found that nearly half (47%) of small business owners do not have a retirement plan in place. For a small business owner who may not have been investing in a 401K, owning the building that your business operates out of could be your best retirement plan.

Planning for your retirement requires both strategy and creativity. Most business owners don’t think they can afford to buy a building, but with upfront costs of only 10%, you can put your monthly payments towards your future. The best course of action is to start preparations early and apply for an SBA 504 loan. SBA 504 loans can help you obtain property ownership and secure valuable property, which will help you tremendously when planning for your retirement.

How to Buy Your Building

It might not seem this way at first glance, but it is most often cheaper to own than to lease a building. The monthly payments are often comparable; however with owning, your payments are going towards your future. Of course, owning requires more funding upfront, but with the help of a Certified Development Company (CDC) you’ll find that financing is well within reach. When looking for funding, a good place to start is with the SBA 504 Loan Program, which guarantees loans at below-market rates for purchases of fixed assets. A 504 loan is a trifold partnership between the borrower, a conventional bank and a CDC, which is a nonprofit corporation certified and regulated by the SBA.

The bank provides 50% of the financing through a first mortgage and the SBA/CDC provides up to 40% through a second mortgage. You are only required to put down a payment of 10%, although some special circumstances may require a greater injection. The 504 loan is fully assumable and offered at a fixed, below-market rate with no additional collateral required.

Advantages of Buying Your Building

There are many advantages of owning your building, and it’s more affordable than many business owners realize, especially since unused space—up to 49% of the property—can be leased out when you use 504 loan funds to buy a building. As a property owner, you retain total control over how you use the property.

When you buy a property, you have the opportunity to optimize the cash flow it produces. For example, property ownership enables you to pay rent to yourself. You can take title in your business’ name, but most people take title with their individual name or with a a newly created limited liability company (LLC), which distributes liability and mitigates risk. By owning the property as an individual or an LLC, you can act as your own landlord and essentially rent the building to yourself. This also brings a number of tax benefits. The ownership of the building does not have to match the ownership of your business so this gives you further options in how you want to take title.

In addition, there is a good chance that your property will increase in value, and it will continue to do so after the 504 loan is paid off. This can be a substantial nest egg for your retirement and provide you with a range of choices for your financial future when that time comes. And when you are ready to retire, the property can be sold or rented, or it can be passed on to your chosen successors.

When It’s Time to Retire

Every business owner should have a succession plan and give full consideration to the creation of your personal and professional legacy. As a business owner, there are a number of options for handling your business when you retire. They include:

  • Liquidating the business and selling the property
  • Selling the business and the property together
  • Transferring the business and property to employees, management or partners
  • Transferring the business and property to family members
  • Most importantly, holding on to the building and renting it to your former company or to a new business

No matter what you choose to do with it, your property is going to be an advantage to you when you retire. Property acquisition through an SBA 504 loan is a broadly accessible and comparatively simple way to increase your financial security later in life.

TMC Financing is one of the nation’s top-ranking CDCs and a Premier Certified Lender with the SBA. If your business is located in California or Nevada and you are thinking about buying commercial real estate for your business, no matter where you are in the process, feel free to reach out to one of our local 504 loan experts. We can help by offering consultations or by prequalifying you for a 504 loan.

Barbara Morrison

Barbara Morrison

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