An SBA 504 loan is one which is designed to fill a market gap for this country’s small businesses, in the area of long-term financing. It requires a 10% down payment and is a fixed-rate loan that is backed by the federal government, which makes it one of the best options available to owners of small businesses. Here are some of the benefits which accrue to a business owner who takes out an SBA 504 loan.
The federal government first implemented this program so as to make property loans more accessible to businesses and entrepreneurs. The intent was to provide economic assistance to local communities, and that strategy has worked out well.
Low Down Payment
As much as 90% of the cost of the property will be paid for through financing, with only 10% of the total cost necessary as a down payment. If you were working with a traditional bank loan, that down payment might be as high as 30%, so this type of loan allows you to retain more of your working capital.
The fees associated with an SBA 504 loan are the absolute lowest on the market and are even more favorable than the flagship type loan offered by the SBA, which is the 7(a) loan.
Own Rather than Lease
Owning a property is much more advantageous to a business owner than leasing it, and it allows you to potentially rent out the building space to other businesses, thereby realizing a profit.
When taking out a 504 loan, and entrepreneur will receive the tax benefits and appreciation on the purchased real estate, while at the same time locking in the cost of occupancy for at least the next 20 years.
Rather than having to worry about economic conditions that might influence interest rates, an entrepreneur can rest easy, knowing that the interest rate is locked in.
An SBA 504 loan will allow you 20 years of amortization, which means you can pay for your new facility over the long term, without exposing yourself to any serious risks.
Competitive Interest Rates
Interest rates for an SBA 504 loan are always based on market factors and are calculated from the debenture rate of the month in which the loan is funded.
Most businesses that are valued at less than $15 million are eligible to apply for an SBA 504 loan to acquire property and/or machinery.
A small business owner has the flexibility to maximize tax benefits while limiting liability with this type of loan. The owner can purchase property and retain title to it personally, or possibly to set up a holding company associated with the real estate.
Considering an SBA loan?
If you’re considering applying for an SBA loan, we’d like to hear from you. At Rotay Capital Finance, we have worked with the SBA many times in the past, and are always prepared to consider a new applicant, so contact us today and we’ll be glad to consider your application.