It’s a scenario we see all the time when it comes to business facilities, office space and other commercial real estate: A business owner has been leasing a building for years, and now the property owner wants to sell it. Suddenly there’s a decision to make. Should you buy the building or move? Before the words “I can’t afford it” run through your mind, consider this:
If you’ve documented improvements you’ve made to the property over the years, you may be able to count it toward a down payment on your building purchase.
Case in point:
A local manufacturer had been paying rent at his location for years, and the building fit his needs perfectly thanks to the $210,000 in improvements he’d made over time. Instead of having to find additional cash to use as down payment on a loan, the $210K in eligible documented improvement costs counted as his equity with no additional cash out of pocket. He ended up with an SBA 504 loan at a below-market, fixed interest rate set up with assistance from Seedcopa.
How it works:
The SBA 504 is a government loan program run through the U.S. Small Business Administration that’s designed to give small businesses an additional way of attaining financing, while stimulating job creation and business growth. The loans are made available through nonprofits certified by the SBA, including Seedcopa. The SBA provides 40% of a project’s total costs, a lender provides 50%, and the borrower contributes 10%. In the case of the manufacturer, his 10% was the $210,000 in improvement costs on a $2,100,000 project.
More reasons to consider buying commercial real estate with an SBA 504 loan:
- A conventional loan often requires 20-25% down payment, instead of 10%.*
- There is no “look-back” period on the timing of the documented improvements.
- You can close this type of straight purchase loan fairly quickly, and lock in your long term fixed rate
- In many cases, your new monthly mortgage can be lower than your current rent payment.
Sherwood Robbins, Seedcopa Managing Director
Marie Shires, Seedcopa Relationship Manager
*Extra 5% equity for businesses less than 2 years old and special use properties (e.g. car wash, hotel, gas station)