Many business owners have certainly faced incredible challenges over the past year. But as history has shown many times before, even in a downturn there are opportunities to be found.
Currently, we’re experiencing near record low interest rates and that’s not expected to change in the near future. For business owners who rent or lease their office space, now is an ideal time to investigate whether an owner-occupied property makes economic sense. For many clients that I’ve had the pleasure to work with, it does.
There are a few ways to pursue the purchase of commercial real estate. Conventional loans are available, of course, but at the moment, one of the best opportunities for small business owners is through a Small Business Administration (SBA) 504 loan. These loans assist small business owners and lead to economic development.
A 504 loan is meant for the purchase of major fixed assets, including the purchase of buildings and long-term machinery or equipment.
ATTRACTIVE LOAN TERMS
An SBA 504 loan is funded by two sources: the SBA via debentures and a financial institution. Spreading the loan’s risk over two sources generally results in more attractive loan rates and terms. A 504 loan requires less upfront equity from the business owner. And unlike conventional loans which can be variable, an SBA 504 debenture is fixed. Lower loan payments spread over a 10, 20 or 25-year loan term allow a business owner to preserve capital for business operations.
PROPERTY COST SAVINGS
Many businesses have found that pursuing an owner-occupied solution will save them money. After considering a 504 loan, we found that some businesses will pay similar costs to their current lease payment, while others will save hundreds or thousands compared to their leasing costs. Unlike leasing, the 504 program facilitates asset ownership.
The applicant is eligible for a 504 loan if the business operates as a for-profit company and the business, including affiliates, have a tangible net worth of less than $15 million. Additionally, the business, including affiliates, must have an average income of less than $5 million after federal income taxes for the two years preceding the application.
We know it has been challenging for many business owners to adapt to the changing circumstances brought on by the pandemic, but the future looks brighter. All the more reason to make sure your business is prepared.
Philip Potamitis is senior managing director, commercial banking, at Bank of Nevada. He has more than 25 years of banking experience in various industries including hospitality, manufacturing, health care and gaming. He can be reached at ppotamitis@BankofNevada.com or at 702-252-6353. Bank of Nevada is a division of Western Alliance Bank. Member FDIC. All offers of credit are subject to credit approval, satisfactory legal documentation, and regulatory compliance. Borrowers are responsible for any appraisal and environmental fees plus customary closing costs, including title, escrow, documentation fees and may be responsible for any bank fees including bridge loan, construction loan and packaging fees.