Buy vs. rent: Own a business? Own your building with the SBA 504 loan
Leasing commercial space can appear to be the cheaper and simpler option for business owners.
However, once you identify your optimal location and operations are standardized and primed for growth, commercial property ownership becomes a stronger long-term strategy.
If you own a business, owning your building offers financial and operational benefits. Learn how the SBA 504 loan makes buying commercial real estate attainable, allowing you to build equity and personalize a space to grow your business.
SBA 504 loans make ownership attainable
Many business owners assume that buying a property is financially out of reach. The SBA 504 loan was established to fill gaps in conventional financing for small to mid-sized businesses.
The program provides a long-term, fixed rate option for business owners to build, buy, and refinance owner-occupied commercial real estate and fixed equipment. The 504 borrower-friendly terms include:
• Low down payment — as low as 10% down for established businesses;
• Below-market interest rates — more affordable monthly mortgage payments;
• Long-term fixed rates — 10-, 20- or 25-year terms, and no surprise balloon payments.
Build equity through commercial real estate
When an SBA 504 loan is used to finance the purchase, renovation, or ground-up construction of commercial real estate, the business owner grows equity as they pay down the loan. In addition to being an investment for the future, purchasing real estate with an SBA 504 loan can lower monthly mortgage payments right away.
Building equity provides financial stability and gives the business an asset that can be leveraged in the future. This wealth creation, especially generational wealth for a family business, is a major advantage of using a 504 loan to own, rather than lease a space.
One SomerCor client, a luxury car service and paint shop, rented their space for more than 30 years. The driving force behind their decision to access an SBA 504 loan to purchase the building was a plan for their daughters to take over the business. In addition to building equity, by owning the building rather than renting, they lowered their occupancy cost by $65,000 annually.
Personalize to maximize operations
When building a new facility using the SBA 504 loan, business owners can choose the ideal location and personalize the space to their specifications. This includes designing the optimal facility layout for maximum efficiency and safety, future-proofing by constructing a building with additional modifications in mind, and creating an environment that reflects the company’s identity and supports employee retention.
This opportunity can be a great fit for larger businesses. Recently the SBA updated its rules to include businesses with up to $20 million in tangible net worth and $6.5 million in average net income after taxes as SBA 504 eligible.
SomerCor served a third-generation manufacturing business that took advantage of the SBA 504 program to finance the construction of a new headquarters that merged their corporate, manufacturing, and warehouse functions under one roof. Their 162,000-square-foot location is a state-of-the art facility, built for growth. This expansion helped the manufacturer better serve the needs of their customers.
Contact SomerCor at www.somercor.com to learn how the SBA 504 program can support the growth of your business.
• Eric Bacon is a senior vice president and loan officer at SomerCor.