Low Down Payment

Many small business owners think financing a commercial real estate purchase isn’t an option because they’ve heard the down payments can be very high. However, there are options for business owners who can’t afford to contribute 20, 30 or even 35 percent of the project in the form of a down payment. Let’s take a look at how the Small Business Administration’s (SBA) 504 loan can help you reach your goals.


Down Payment Requirements

For businesses looking to protect their cash flow, or facing tighter cash flow because of higher interest rates, the SBA 504 offers an advantage.  Down payments as low as ten percent.  This amounts to huge cash savings as most conventional loans require 20%, or even up to 35%, down.


Interest Rates and Loan Terms 

Conventional loan rates are typically only fixed for a certain period of time, usually 3-10 years.  After that, the rate is reset and could become variable.  In a rising rate environment, that means you could find yourself with a much higher rate in the future.  Conversely,  a long-term fixed-rate mortgage, such as the SBA 504, locks in today’s low interest rates and eliminates concern over future interest rate hikes.  The interest rate for SBA 504 loans has averaged a low 4.33% this fiscal year.  By locking in this low rate, which is fully amortized over 20 years, you’ll see predictable and lower monthly payments.


Balloon Payments and Call Provisions

A balloon loan mortgage, common in commercial real estate, is usually a short mortgage that requires a large one-time payment at the end of the term.  This can mean your payments are lower in the years before the balloon payment comes due, but you will either owe a lump sum at the end or be required to refinance the balance.  This can lead to another round of building appraisals and credit approvals to endure.  However, unlike conventional commercial real estate loans, a 504 Loan has no balloon payments.

Call provisions are similar to balloon payments in that, with a conventional loan, you may be required to maintain a specific debt-service coverage ratio as a way for lenders to lower their risk.  If you fail to meet that provision, the bank can “call in” your loan.  This means you would either have to pay off the balance, or refinance it.  The SBA 504 Loan Program has no covenants or call provisions either.  What you get is a long-term, fixed rate loan offering secure, predictable monthly payments for the life of the loan.


Closing Costs, Soft Costs and Other Fees

All loans come with closing costs, which include appraisals, loan origination fees, etc.  These expenses can add up quickly.  Conventional financing typically requires all closing costs to be paid upfront, but SBA 504 loans allow you to roll them into the loan, thus preserving your cash. Not to mention, if you are expanding your business, the cost of equipment, furniture and fixtures, parking lots, architectural fees, etc. can also be rolled into the loan, saving you even more.


504 Loans Are Attractive To Conventional Lenders

SBA 504 loans offer banks a good deal, as well. Your 504 loan is a low risk for the conventional bank because they hold the first mortgage. They have a lien on the whole property, even though they are only financing a portion of it. It is an easy way for the bank to attract new business and to enlarge their impact in the community. This means that you are more likely to get financing from a conventional bank when you are backed by the SBA with a 504 loan. The bank may even give you better conditions than they would offer otherwise.


If you are interested in a loan, or have questions about it, don’t hesitate to contact Growth Corp. Growth Corp’s 504 loan experts will be happy to answer all of your questions, as well as to help guide you through the 504 loan process. Growth Corp has been a high-volume 504 loan provider for over 25 years and is an Accredited Lender with SBA.