If you’re a commercial real estate agent or broker who works with small business clients, you need to know about the SBA 504 loan program for owner-user deals. This SBA option is available in partnership with a commercial bank of your client’s choice and a certified development company (CDC), such as Pursuit (for clients in New York, New Jersey, and Pennsylvania).
CBRE Associate Broker Craig Darby referred the SBA 504 loan program, in conjunction with Pursuit, as a funding option for Pioneer Window Manufacturing Corp. “Every commercial real estate agent and broker should keep the SBA 504 loan program on the table. It has a lot of great benefits for owner-users, including the 10% down-payment and advantageous terms,” Darby says. “If your client’s business is in Pursuit’s service area, it’s also great to know that working with the Pursuit team is another advantage. They’re responsive, professional and have the experience to get these deals through efficiently and effectively.”
Case Study: Pioneer Window Manufacturing Corp., Johnstown, NY
Purchase price: $2.4 million
Closed: June 2020
Referred by: Craig Darby, CBRE Upstate NY
Pursuit Business Development Officer: Ross Pancoe
Pioneer Window is a full-service supplier of architectural windows, doors, storefronts, and other architectural products for residential, commercial, and institutional buildings. The owners’ goal was to purchase a building adjacent to the existing manufacturing facility.
After meeting with Pursuit and reviewing several financing options, Pioneer Window chose to move forward with the SBA 504 program. Darby says that the primary factor in the decision was the SBA 504 loan program’s 10% down-payment requirement, which enabled Pioneer Window to retain more cash for operational and expansion needs.
When working with your clients, it’s important to know that the SBA 504 program finances 40% of the deal, up to $5.5 million, with no overall project maximum. Deals financed with the SBA 504 loan program close in about the same timeframe as conventional bank loans. In addition, there are special incentives available now through the SBA 504 loan program for deals that include or improve energy efficiency, sustainability and more.
Here’s what this looks like for a deal like Pioneer Window:
Total project cost: $2.4 million
- Owner equity (10%): $240,000
- Bank financing (50%): $1.2 million
- SBA 504 (40%): $960,000
Among its approved uses, the SBA 504 loan program can be an ideal financing option for owner-user purchases and renovations of existing property, as well as construction of new buildings. It’s particularly valuable when you have clients who:
- Would benefit from the SBA 504 program’s low down-payment requirement – only 10% for most deals (or up to 15% for some specific industries or specific, single-purpose buildings) versus 20-30% required for typical conventional commercial mortgage deals.
- May not meet all the lending criteria for conventional commercial mortgages. The SBA 504 loan program was developed to help small business owner-users gain access to financing for commercial property ownership, when at least 51% or more of the commercial property is used for the business.
- Have businesses in industries that are typically challenging to finance through conventional lenders – including restaurants, retail, construction, and child care.
- Want terms that make it easier to repay the loan as agreed. The SBA 504 loan program provides owner-users with repayment terms amortized over 25 years, with fixed-rate loans that enable better financial management over time.
- May not have additional collateral to pledge – with an SBA 504 loan, there are no additional collateral requirements.
Learn more about ways that Pursuit can help
When you help clients find the financing that they need for their owner-user commercial real estate deals, it’s a win-win: You build long-term loyalty that pays off in repeat business and referrals while they get great financing terms to build the business of their dreams.
If your commercial real estate brokerage is in New York, New Jersey, or Pennsylvania, contact us today to learn more about ways that Pursuit can help.
