SBA 504 Financing for Ground-Up Construction
Businesses across every industry are looking for the ideal space that supports operational efficiency, employee retention, and opportunities for growth. When a business owner decides new ground-up construction is the right choice over purchasing an existing building, the SBA 504 loan is a great financing option.
Here are three reasons to use the SBA 504 loan for ground-up construction: borrower-friendly loan terms, the opportunity to build out the space to best support the business, and the option to include financing for new equipment.
SBA 504 Loan Borrower-Friendly Terms
The SBA 504 loan program is offered by the U.S. Small Business Administration to incentivize and support business expansion and capital investment. This public-private partnership provides a long-term fixed rate lending solution for business owners to buy, build, or refinance owner-occupied real estate and equipment. The SBA 504’s borrower-friendly terms include:
• Low down payment — up to 90% financing for established businesses, freeing up capital to reinvest in the business;
• Below-market interest rates — lower and more affordable monthly mortgage payments;
• Long-term rates 10 (equipment purchases), 20 or 25 year fixed — no surprise balloon payments.
When an SBA 504 loan is used to finance the build-out of a new facility, the business increases equity as is pays down the loan. Owning the real estate provides long-term financial security, stronger site control and better management of overhead expenses, as compared to leasing, even if business fluctuates.
Building equity provides financial stability and gives the business an asset that can be leveraged in the future. This wealth creation is a major advantage of using a 504 loan to buy and build, rather than lease a space.
Personalize to Maximize
When building a new facility using the SBA 504 loan, business owners can choose the ideal location and personalize the space to their specifications:
• Efficiency — Design to specific business needs and workflows with the optimal facility layout, including furniture and fixtures;
• Branding — Construct a building that reflects the company’s identity and values;
• Future-Proofing — Plan ahead with expansion or modification capabilities in mind;
• Compliance and Accessibility — Ensure full compliance with current regulations and accessibility requirements;
• Employee Retention — Create an environment optimized for employee comfort and productivity. Incorporate the latest health and safety features and emerging workplace trends;
• Energy Efficiency — Take advantage of the SBA 504 Green Loan program to finance design and material choices to reduce energy use or offset that consumption through renewable energy.
For all new construction, the business must occupy at least 60% of the property initially, and 80% within three years to meet the requirements of the SBA 504 Loan.
Finance New Equipment
In addition to supporting business growth through a new building, the SBA 504 loan can support new business lines through heavy equipment purchases. Incorporating new equipment can also expand the capacity of existing verticals.
New equipment often integrates better with modern software and systems, improving overall operational efficiency. Additionally, newer equipment is less likely to break down, and often comes with enhanced safety features, reducing the risk of workplace accidents.
Plus, state-of-the-art equipment can help attract and retain skilled employees who prefer working with the latest technology. Reach out to our team today or visit www.somercor.com to learn more about the benefits of using the SBA 504 loan for ground-up construction.
— Lis Williams — SVP, Loan Officer at SomerCor