This year proved to be a busy year in Southern Nevada for SBA 504 loans, which are designed to help small-business owners grow their companies through the purchase of commercial real estate.
While there are no major changes to the program in 2020, the SBA has a few additional requirements that relate to life insurance and business licenses.
LIFE INSURANCE
For sole owners of a business, life insurance will now be required when applying for an SBA 504 loan. For every $1 million borrowed, $50,000 (or 5 percent of the appraised amount) in life insurance will now be required. Most loans I handle do not require life insurance, as this is only a requirement for sole owners, and a relatively small amount of insurance required. You can use your existing policy or your lender can help you find an insurance agent who can provide a quick and easy policy for you.
BUSINESS LICENSE
This relates to a requirement to provide a business license prior to closing on the SBA loan (which happens after the close of escrow). Before your loan funds, the SBA wants to make sure you have all licenses in place.
This will especially affect those in food service industries, because improvements, certificates of occupancy and certificates of completion will need to be approved by the health department before applying for the business license.
If you are buying the property you already operate from, this will have little to no effect on your process, since you already have the business license for that location. Most businesses that apply for SBA loans already have their business licenses in place, which may be the case for you.
Overall, I believe the Southern Nevada economy is healthy and stable. One indicator of a healthy economy is a diversified economy, and Southern Nevada’s diversification continues in the coming year. We are seeing continued expansions of education programs that bring new professionals to the market, as well as sports and entertainment venues that will drive tourism and thus additional businesses to serve them.
My industry is driven by small-business owners, some of whom have been holding cash and waiting until just the right time to stop renting and purchase their own property.
When their lease agreements come up and their rent increases again, they realize they could be investing in themselves with their own offices or buildings.
SBA 504 loans are a great option when looking at purchasing property because they allow business owners to purchase, renovate, construct or refinance commercial real estate with only a 10 percent down payment, and below-market, fixed-rate financing. SBA 504 loans are structured with a first mortgage from a conventional lender, typically representing 50 percent of the total project, and a second mortgage from a Certified Development Company (CDC) like mine which is backed by the SBA.
I hope the New Year brings growth and opportunity to your business!
Chris Hunter of TMC Financing is a Las Vegas commercial real estate expert.