SBA 504 Loans Help Small Business Buy Real Estate
Attention small businesses. Why don’t you own your building? How long are you going to continue to pay the mortgage for your landlord? Every couple of years you hear the same old story. “I’m sorry but I have to raise your rent this year. Taxes are up. Fuel prices are up. I’m barely surviving.” Meanwhile he drives away blasting the Rick Astley CD in his customized Lambo with the hand stitched Champaign leather interior. The SBA 504 loan program will change all of that for you.
The Small Business Administration 504 loan program allows you to purchase your own property for relocation or expansion by putting only 10% down. You heard me right. Gone are the days of building up 30-40% cash equity for a capital purchase. The government wants jobs, so the SBA works with a lender to make your dream of owning your own property a reality. Your third party lender must lend not less than 50%, and the SBA through a community development corp. will lend not more than 40%.
Tom McHale of the New York Business Development Corp explains how it works, “The NYBDC can lend up to 40% of the project cost and go up to $5MM. We expect the approvals to come in 30 days. Funds can be used to acquire buildings or land, leasehold improvements, renovations, construction, machinery & equipment and other soft costs. For comparable rates, look at treasury rates.”
The bad: Only for profit businesses are eligible except for sheltered workshops. If you own 20% of the operating company you must sign a personal guarantee. The 504 program is not a development program for investors so your business must occupy at least 51% of the facility. The CDC charges 2.25 points on the project. You must also show how the loan will create jobs.
The good: The low down payment in the 504 program lets the borrower preserve their cash for working capital. 504 loans are for 10 or 20 years allowing low monthly payments. The blended fixed rate between the bank and the SBA makes the project affordable. Plus the community gets a healthy growing business.
Overall it’s a great chance to keep your expenses fixed, own your own building and grow your business. So don’t get Rick Rolld. If you need to find your local SBA District Office, click here. If you need to contact Tom from the NYBDC in New York … AskRey.