For many small business owners, the words “real estate” can elicit everything from anxiety to utter dread. Like a bitter pill, some entrepreneurs tend to squirm at the thought of owning the plot of land on which their business resides, assuming the worst about costs and the headaches that come with upkeep. Sure, who would NOT like to own their office or business space? But that’s a conversation for another day – putting the topic off like those pesky taxes or the diet you promised to commit to in the new year. The good news is: there is an answer for small business owners that are uneasy with the concept of first-time commercial building ownership.
If you are a small business owner, you may be quite familiar with the Small Business Administration (SBA), the group created with the passing of the Small Business Act of 1953 to be the primary cheerleader for small businesses in the Federal government. Since it began those many years ago, SBA has worked to protect and encourage America’s small businesses, making good on that promise through multiple loan and assistance programs. Unfortunately, first-time commercial real estate buyers often know little to nothing of these resources that could be make or break for small businesses across the country.
One such opportunity, and one that I find is both woefully undersold and incredibly beneficial, is the SBA 504 loan. For complete disclosure, this is the loan program that my firm, Fountainhead Commercial Capital, specializes in – our bread and butter. But that should only further act as proof of the dependability of this loan. It is truly something my associates and I are confident hanging our hats on.
How can the SBA 504 loan benefit your small business?
The real and immediate benefits of utilizing the SBA 504 loan are varied and impactful. Before brushing off the notion of owning your business, truly owning it down to its literal foundation below and roof above, consider the following ways that this loan can make the leap a manageable one for many:
- Down payments as little as 10% of the total project amount
- Long-term loans with up to 25-year amortizations
- Lower monthly payments than most traditional loans, offering fixed-asset financing for an entire 20-year term
- A below-market, long-term fixed interest rate, unlike those available in traditional bank loans, which may rise
These benefits are only multiplied if the loan is accessed through a knowledgeable lender. However, before you begin your search for the right SBA 504 loan specialist, you should probably first ensure that your business qualifies for it. Eligibility requires that your for-profit, non-publicly traded business has:
- A tangible business net worth (including affiliates) that does not exceed $15 million
- An average net income that does not exceed $5 million over the previous two years
- An ownership that is generally comprised of 51% U.S. citizens or Legal Permanent Residents (some exceptions apply)
Once eligibility has been determined, you can begin looking into the real-world applications that this loan can have on your business, once approved. The term “small business” is quite a broad term, and thus, the SBA 504 must (and does) apply to an eclectic list of common needs that entrepreneurs struggle with when looking to expand their business and double down on future success by entering the world of commercial real estate. Just a handful of the uses of the SBA 504 loan include:
- The acquisition of vacant land
- Building construction
- The acquisition of existing buildings
- Major renovations and/or additions to existing buildings
- The purchases of capital equipment
- Associated costs, such as architectural fees, site plan and building permit fees, title insurance, appraisal, environmental report, survey and other such costs
The SBA’s goal is to make the often turbulent, hair-pullingly stressful job of owning one’s own business just a little bit easier. With the SBA 504 loan, they do just that for the thousands who have seen their small business blossom but need an hand securing the long-term success born out of ownership. Wealth creation through commercial property ownership is easier than you may think.
So, get started early next tax season, double down on that diet and, most of all, do not be afraid of dipping a toe into commercial real estate with the SBA 504 loan – it may just be the key to taking your small business to the next level.
Of course, the above is just the tip of the iceberg when it comes to the benefits of the SBA 504 loan. If you need help wrapping your head around this loan and others, never be afraid to reach out to a specialist.
Contributed by Chris Hurn, CEO of Fountainhead Commercial Capital.