If you are wondering about how to acquire property through an SBA commercial real estate loan, you’ve come to the right place. The 504 Loan Program provides access to small businesses for the same kind of financing which larger businesses enjoy, including the long term aspect of it, as well as the fixed-rate appeal. Virtually any kind of legitimate business is eligible for the SBA 504 loan, whether it’s involved in retail, professional services, or even manufacturing.
What the Loan Can Be Used For
When you obtain a 504 loan from the SBA, you can use it to purchase such items as land, owner-occupied buildings, utilities, parking lots, landscaping, street improvements, construction of new facilities, long-term machinery or equipment, and you can even renovate existing facilities. You can also include such costs as legal fees or architectural fees, appraisals, environmental studies, or the interest and fees on construction.
How a 504 Loan Works
Typically, a 504 loan from the SBA is structured so that half the project costs are provided by a lender from the private sector, and this loan is most often over a ten-year period, with either a fixed or variable rate. Another 40% of the project costs are covered by a fixed-rate debenture which is secured by a junior lien from an SBA Certified Development Company (CDC). The debenture itself is supported by a 100% guarantee from the SBA.
The remaining 10% of the project costs are provided by the purchaser. The biggest appeal of this 504 loan from the SBA is that there’s only a 10% down payment required. In some cases, a local organization or governmental body will volunteer to pay for some portion of the financing in order to secure the business for its community. Since there is a much lower down payment necessary, and many other soft costs can be financed, it’s entirely possible that a small business could save as much as $100,000 on a loan of up to $1 million.
Thinking About a Real Estate Purchase?
Contact us at Aspen Commercial Lending if you want to purchase real estate that you’ve had your eye on. We may be able to provide the funding necessary for your acquisition, so we’d like to discuss the transaction with you.
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