Close CRE Deals with the SBA 504 loan
The commercial real estate market continues to find its footing after the pandemic.
Business owners may have more options to choose from, but financing is still a challenge. Capital is more expensive and higher interest rates can cause the right property to be out of reach. This is where the Small Business Administration (SBA) 504 loan program can help close the deal.
The SBA 504 program offers a public-private lending solution for business owners to buy, expand or refinance major fixed assets like owner-occupied commercial real estate and heavy equipment.
Commercial real estate professionals can highlight the borrower-friendly terms of the SBA 504 loan to help bridge the financing gap and close more deals with the support and expertise of a certified development company, like SomerCor.
Expanded Client Base
The SBA 504 loan provides commercial real estate professionals with a tool to attract business owners who might otherwise be priced out of commercial real estate, increasing the potential client pool.
First, the structure of the SBA 504 loan usually requires only 10% down, compared to a typical 25% down payment for a conventional loan. The low down payment requirement can help clients who have the cash flow but lack large cash reserves, turning “not right now” into “yes” decisions.
Additionally, the SBA 504 loan features fixed, below-market interest rates for a 10-, 20- or 25-year term. In the current high interest rate environment, the SBA 504 loan program stands out. A lower interest rate means lower and more affordable monthly mortgage payments, freeing up capital to reinvest in the business. And, unlike traditional commercial mortgages, the SBA 504 loan does not have a balloon payment. This means more predictable expenses for the business over the life of the loan.
Property personalization
Even with more inventory to choose from, businesses across every industry are looking for the ideal space that supports operation efficiency, employee retention, and opportunities for growth.
The SBA 504 loan, in addition to purchasing property, can be used to finance renovations. It also can be used to purchase land and construct a completely new facility from the ground up.
Another unique benefit of the SBA 504 loan is that it can finance energy-efficient upgrades. Green loan projects can be structured with up to $5.5 million in financing from the SBA (up from $5 million for typical 504 loans), and there is no limit on the total project size. It is a great option for mission-oriented business owners looking to also reduce energy costs over the long-term.
Competitive advantage
In the current commercial real estate market, every advantage counts. Being familiar with the SBA 504 loan program and its benefits for borrowers can set an agent apart as the go-to resource for business owners.
Knowledge of the 504 loan program leads to solutions-based selling. The SBA 504 loan is a financing option that can overcome common obstacles, like high down payments, increasing interest rates, and balloon payments. Plus, partnering with SBA 504 loan professionals, like SomerCor, can streamline the process, reducing the time to close.
Reach out to our loan origination team today or visit www.somercor.com to learn more.
• Eric Bacon is a senior vice president and loan officer at SomerCor.