As a seasoned business owner or entrepreneur, it’s important to understand your financing options when looking to acquire commercial property. While it may come as a surprise to some, the Small Business Administration (SBA) actually offers viable solutions for financing these types of acquisitions.
SBA loans are lending programs offered by the Small Business Administration to provide funding for various business purposes. Unlike a traditional bank business loan, SBA loans feature guaranteed repayment of a portion of the loan. This feature lessens the risk a bank needs to take on since the government assumes a portion of the risk, which means more people may be eligible for business lending as a result.
Due to the expense and risk associated with commercial property lending, banks often have trouble financing growing businesses through traditional means. An SBA 504 Loan is a great option for business owners to secure commercial real estate financing with terms that are both fair and affordable. Banks are keen on these SBA loans, too, because the loan is guaranteed by the value property in addition to being backed in part by the full faith and credit of the U.S. Government.
In addition to using a 504 Loan for commercial property acquisition, a borrower can also use proceeds from the loan to purchase equipment their business needs. They can even be used for renovation or making additions to existing properties. When it comes to ease and flexibility, an SBA 504 loan is often the best choice for growing businesses and entrepreneurs.
So what exactly are the benefits of an SBA 504 loan? First, the only collateral you need for a loan is the real estate or equipment you purchase—nothing more. Also, in addition to offering low interest rates, down payment requirements for SBA 504 loans only range between 10-15% of the purchase price, unlike traditional bank loans which can require up to 30% down. Borrowers also have the flexibility of repaying their SBA loan over 10 years or even 20 years.
It’s important to understand that the SBA does not make the loan, but guarantees it for the financial institution that does. This means that even though you are avoiding the rigorous terms of a traditional bank commercial loan, you will still have to work with a bank or qualified lender to make your loan. Don’t worry though, a lender who offers SBA loans will know the ins and outs of the process and will be more than happy to help you through the process each step of the way.