July 30, 2014
Small business owners who are tired of paying rent and have a lease renewal on the horizon, should know there’s an alternative to renting – building ownership via an SBA loan program call SBA-504.
Instead of writing a check to a landlord every month, business owners can be paying themselves.
The top three reasons to own a commercial building are:
1. Equity – every payment made is an investment in a business owner’s future. They can leverage the accumulated wealth for further business growth or new options when the time comes to retire.
2. Stabilize occupancy costs – rent increases no longer apply; the monthly payment is always the same. SBA-504 loans offer a fixed rate for 20 or 10 years.
3. Preserve cash – in many cases, the monthly payment to own is less than the rent. Small business owners can use the retained working capital to buy inventory, hire new employees, purchase needed equipment or invest in other strategies to grow or improve the business.
Southern California-based MachineTek, which manufactures components for the aerospace and defense industries, recently used a $2.4 million SBA-504 loan to buy its facility. The company expects to save $2,000 a month by owning the building versus leasing it.
Another benefit of SBA-504 loans is saving taxes. Just like a home mortgage, interest on commercial real estate loans is tax deductible.
Small business entrepreneurs are discovering other advantages of SBA-504 financing, including the “Green” provision, which allows higher lending amounts for small business owners who want to buy or upgrade commercial/industrial buildings and make them more energy efficient. Buildings over $20 million can be financed using the SBA-504 program. Small business owners need only demonstrate a projected 10% reduction in energy costs by deploying one or more energy-saving improvements (e.g. insulation, lighting, heating/air conditioning).
SBA-504 loans are provided in partnership between certified development companies and banks. CDC Small Business Finance works with over 70 banks and other lenders.
The current SBA-504 rate is 4.94%, fixed for 20 years.