When you’re buying your own space for your business, or heavy machinery and equipment, you’ve got options for your commercial mortgage. The SBA 504 loan program is a small business loan that makes it more affordable for you to buy commercial real estate and fixed assets while keeping more money in your business.
What is an SBA 504 loan and how can it benefit your business? Let’s find out! You can also watch the video above to learn all about the program’s features.
What is an SBA 504 loan?
The SBA 504 loan program can be used to purchase owner-occupied commercial real estate, fixed assets like equipment, and to refinance eligible business debt. It’s a great option for business owners because it offers:
- A low down-payment for the borrower
- Fixed interest rates, and
- Longer repayment terms
How do SBA 504 loans work?
A 504 loan is a second mortgage that’s made in addition to a first mortgage loan through your bank. The 504 portion will be provided by a Certified Development Company (CDC), like Pursuit. CDCs are non-profit organizations that are certified and regulated by the SBA. They administer the SBA 504 loan program to promote economic development and help more business owners build equity for the future.
Though the SBA 504 program, you’ll be taking out two mortgages, but that doesn’t mean the process needs to take longer. In fact, the time to funding is about the same as using a bank-only loan, and there are significant savings for you as the business owner.
For a typical 504 project, your bank will provide 50% of the financing, the CDC will provide 40%, and you’ll need to put as little as 10% down. Most conventional mortgages require 20% as a downpayment, so using the 504 program can keep more money in your business to keep it moving forward.
Benefits of the SBA 504 program
When you’re buying owner-occupied commercial real estate or other fixed assets, the SBA 504 program offers many benefits that will keep your business growing.
For one, the SBA 504 loan program requires a lower down-payment for you, the business owner. Depending on your project, your down-payment could be as low as 10% of the total project cost. That means you can receive up to 90% financing for your project and keep more money in your business to grow and expand.
Even better, the SBA 504 loan program also features a low, fixed interest rate. You’ll find that 504 interest rates are typically lower than other financing options, which will save you significant money over time.
The rate is also fixed at the time of funding, so it won’t change during the life of your loan. This means you’ll have a consistent monthly payment that allows you to more accurately plan and budget for the future.
When you’re approved for an SBA 504 loan, you’ll also get a longer repayment term. The 504 loan program offers terms from 10 years to 25 years, with the total financing spread out over that period of time. Longer terms create lower monthly payments, which makes financing for commercial real estate and fixed assets even more affordable through the 504 loan program.
How have other businesses used the SBA 504 loan program?
Commercial real estate, renovations, construction, land purchase, and refinance…these are just a few of the ways you can use an SBA 504 loan. Let’s take a look at how other business owners have used the program.
Purchasing owner-occupied commercial real estate
After renting their location for years, Dion and Shane Mitchell-Hope were ready to purchase their Riverhead-based restaurant, SHADEES, to invest in their future. They worked with their bank and Pursuit to secure an SBA 504 loan to purchase the location with just a 10% downpayment.
“When you can hold onto your cash for working capital and a cushion, it helps so much,” says Shane. As they build equity in their location, they’re also saving money with a mortgage that’s lower than their monthly rent.
Renovations and equipment
Derek and Stacey Edinger found the perfect space to start their Belgian-inspired brewery in the Finger Lakes but needed to make extensive renovations to fulfill their vision. With an SBA 504 loan, they purchased the brewing equipment they needed and completed construction on their brewery.
Derek says, “Because of the SBA 504 process, our Pursuit team really pressed us to think through every detail and challenge…In the end, it made opening and running the business much smoother.”
Today, Brewery Ardennes is open year-round serving Belgian ales and seasonal favorites. Derek and Stacey earned the Small Business of the Year award from the Landmark Society of Western New York recognizing the renovation and reuse of the historic barn that became their destination brewery on the Seneca Lake Wine and Beer Trail.
Refinancing debt
Buying and renovating commercial real estate sometimes means taking on multiple loans with varying interest rates. That’s exactly what Brent Pelton found as he built his collection of boutique hotels, including American Beech and restaurants. The SBA 504 program has a refinance option for eligible debt, which allowed Brent to significantly lower the interest rate on his debt.
You can use the refinance option to consolidate debt related to owner-occupied commercial real estate, land purchases, new construction and renovations, and purchasing heavy machinery and equipment. You can also cash out up to 20% of your property’s value for working capital.
As part of his refinance, Brent received more than $2 million in a cash out which went toward the operating expenses for his properties and freed up more capital for new opportunities.
Pursuit is here to help
There’s so much to explore in the SBA 504 loan program, and Pursuit’s expert lending team can help you understand its full potential. We’ll work side-by-side with your bank to keep the SBA 504 process running smoothly so you can get the funding you need to grow and expand.
If you’d like to learn more about your loan options for commercial real estate and fixed assets, get in touch with us today. We look forward to working with you!
