Small business owners often believe that owning commercial property is out of reach because conventional real estate loans require a hefty down payment of 20-40%. However, we have great news for you! There is a program specifically designed to help small businesses purchase commercial property with as little as 10% down. The Small Business Administration (SBA) 504 loan program offers an affordable option for acquiring fixed assets such as land, buildings, construction renovations, and equipment upgrades. With low upfront costs and favorable terms, the SBA 504 loan can turn your dreams of owning a new commercial property into a reality.
Low Down Payments with the SBA 504 Program
One of the biggest advantages of the SBA 504 program is the low down payment requirement. In most cases, a 10% down payment is all that's needed. Even in scenarios where a 15% down payment is required for single-use properties or businesses less than two years old, it is still significantly less than the 20-40% required for a conventional loan.
Image: SBA 504 Commercial Property
Roebbelen Contracting, a commercial construction company, realized that conventional real estate financing was not feasible due to the high upfront costs. They took advantage of the 504 program's low down payment to secure their commercial property. Rob McLean, the COO of Roebbelen, explained, "What appealed most to us about SBA 504 Financing was the 10 percent down payment. If we had to come up with a down payment of 30-40 percent, it may not have made sense for my business."
Additional Benefits of the 504 Program
Besides the low down payment, the SBA 504 loan program offers several other advantages:
Long-term, Fixed Interest Rates
Unlike conventional loans affected by market volatility and inflation expectations, the SBA 504 loan provides borrowers with below-market, long-term fixed interest rates. This stability allows business owners to hedge against rising interest rates and budget their occupancy costs effectively, focusing on future financial growth.
No Additional Collateral Needed
The only collateral required for the 504 loan is the asset you are purchasing. This eliminates the need for additional collateral, making the process smoother and less complicated.
No Balloon Payments
Many commercial real estate loans involve a balloon payment, which requires a large sum to be paid at the end of the loan term or necessitates refinancing. However, with the 504 loan, borrowers can avoid this requirement altogether, providing peace of mind and financial stability.
Equipment Financing
In addition to commercial property acquisition, the SBA 504 loan program allows business owners to finance equipment and other fixed assets with a service life of at least 10 years. This is particularly beneficial for businesses requiring specialized equipment such as commercial printing equipment, medical & dental machinery, and gym equipment.
Is the SBA 504 Program Right for You?
You might think that qualifying for a 504 loan is exclusive, but in reality, nearly all U.S. for-profit businesses qualify for this program. To be eligible, the purchaser must occupy at least 51% of the building. For new construction, the requirement is to occupy at least 60% of the building.
The 504 Loan Comes with a Team of Experts
The 504 loan is administered by a Certified Development Company (CDC) like TMC Financing. CDCs are nonprofit organizations dedicated to supporting economic development within their communities through the SBA's 504 loan program. They guide business owners through the entire loan process, acting as advocates throughout the loan's life.
CDCs can provide a prequalification analysis to help small business owners determine their purchasing power, allowing them to act swiftly when the right opportunity arises. In the competitive Bay Area market, a prequalification letter from TMC Financing completed within 48 hours can give you an edge over other offers, making or breaking a deal.
Image: TMC Financing
Conclusion
If you are considering buying your own commercial property, reach out to one of TMC Financing's local 504 loan experts. Regardless of where you are in the process, they can help guide you through the next steps, from the prequalification process to the duration of your loan. Don't let the assumption that commercial property is unattainable hold you back. With the SBA 504 loan program, owning a commercial property with a low down payment is within your reach.
