Dear Dan: We’re a growing business that’s been renting space for years. Is this a good time to consider buying our own facilities? – Opportunity Knocks
Dear Opportunity: For some small businesses, the upside of a dismal real estate market is bargain basement prices on commercial buildings. If you’ve considered investing in your own digs – whether it is an office, warehouse, retail space or industrial facility – now may be a good time. Real estate ownership helps build wealth and value in your business, and halts the process of paying ever-increasing rents.
Despite financial-market turmoil and talk of vanishing credit, commercial-mortgage loans are available for business owners with good credit and financials. One option in particular to look into is the U.S. Small Business Administration’s 504 Loan Program for commercial real estate.
Under the SBA 504 program, growing businesses can get long-term (up to 25 years), fixed-rate financing to buy land and buildings, build a new structure or renovate existing commercial real estate. Even better, so-called “soft costs” such as legal and architect fees, appraisals and site studies can be included in the loan.
All types of small businesses are eligible for 504 financing, including professional service, retail, manufacturing and wholesale. The down payment requirement for the business is typically 10 percent.
Chris Hurn, CEO of Mercantile Commercial Capital (MCC) – a firm specializing in SBA 504 loans – calls the program today’s “best kept secret of wealth creation for business owners.” It is also vastly under-used, largely because so many entrepreneurs do not know it exists, and are confused about how to get loans for commercial real estate.
MCC focuses exclusively on providing SBA 504 loans for business owners to finance commercial-property purchases. The firm’s Web site (504experts.com) is chock full of case examples profiling small businesses that bought buildings with 504 loans. They range coast to coast, and include everything from neighborhood groceries, child care businesses and skin care outlets, to engineering firms, learning centers and waste services.
Hurn claims that SBA 504 loans often get overlooked – even by commercial-loan brokers – because of problems and paperwork involved with the agency’s better-known 7(a) lending program. That’s a mistake, he says, because the approval process is actually quick, with modest paperwork. And borrowers with top credit can negotiate lower fees. •
Daniel Kehrer can be reached at editor@business.com.
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