Using an SBA Loan for a Real Estate Purchase

If you want to buy a building for your small business, you may be concerned about securing a sufficiently favorable loan. Many banks are hesitant to risk conventional commercial mortgages in new or small businesses. Fortunately, an SBA loan may be able to help. Specifically, the 504 program is designed to help businesses buy, improve and construct major assets such as real estate.

Why Use a 504 Loan?

There are several great reasons to choose a loan from the SBA if you can qualify. These are a few of the key benefits:

  • Minimal Down Payment: With the 504 program, you may be able to buy a building with as little as 10% down. This is much lower than the typical down payment for conventional commercial loans which could be as high as 40%.
  • Low-Interest Rate: The 504 program has a fixed interest rate below the market. This means that you can score a great rate and lock it in the long-term.
  • No Additional Collateral: When you buy an asset with the 504 programs, you do not need to provide any additional collateral. That makes this option very accessible to small businesses.
  • Long Terms: Loans can last up to 25 years in this program. That gives you plenty of time to repay.

The Value of Owning

When you own your workplace, you have greater control over how you will use the asset. Additionally, you own the asset, which means that your business has greater value. Buying the building now could help ensure your retirement in the future. Even if the business struggles, you will still have the equity you own in the real estate.

Furthermore, there are often tax advantages of owning the real estate you work from. This can save you significant money each year.

Getting a 504 Loan

If you want to get an SBA loan under the 504 program or any other mechanism, you will likely need to work with a lender. The SBA does not provide loans directly. Instead, it guarantees loans offered by lending institutions.

Talk with your lender to determine if this option is available for you. It is often the best way for small businesses to pay for real estate purchases and other investments. The 504 program is restricted to owner-occupied buildings with only a few exceptions. So, you will not be able to use this if you want to rent the space out. If you need a workspace, however, this is a great option.

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