There are many reasons why small businesses turn to the lending programs offered by the Small Business Administration, such as startup funding or even recovery from natural disasters. When you are researching SBA loans for buying or renovating real estate for your company, however, you will want to start by reading up on the 504-loan program or the Certified Development Company SBA program. This type of loan is designed to help you work with a CDC to purchase or repair real estate which is at least fifty percent owner-occupied and can benefit your company in several ways.
Interest Rates and Repayment
One of the biggest draws of 504 loans is that they feature below-market interest rates which are fixed for a twenty-five-year term. When you factor this rate into your projected monthly mortgage amount and compare it to your lease payment, it can be easy to see why more business owners are looking to buy their locations instead of face rent increases every year. Since 504 loans are fully amortized, you will also not have to worry about a looming balloon payment at the end of your term.
Uses and Limits
504 SBA loans, like most loan programs, will have defined uses and limitations which are important to consider before applying. You will need to work with a CDC and an SBA preferred lender for this program to ensure that the real estate and renovations you want are designed to help fuel economic growth in your area and to ensure that the funding is only going to the purchase, repair or renovation of a commercial property or large equipment.
Applications and Qualifications
The application process for 504 loans is much the same as for other SBA programs in that you will need to meet the administration’s definition of a small business as well as have three years of both business and personal tax returns, a personal financial statement, and interim financials for your business. Your company will need to occupy at least fifty-one percent of the real estate covered by this loan program but are free to rent the rest to other businesses, and any equipment you purchase with this loan needs to be critical to business function.
Business owners can use different types of SBA loans to reach goals such as growing into a new location and reducing their monthly rent payments. The 504-loan program is designed to help businesses purchase, renovate or repair real estate as well as fund large equipment purchases. These loans have a fixed rate and are amortized over a twenty-five-year term.
