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SBA loans assist businesses in buying their building

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One of the most pressing issues for business owners looking to expand or grow their business is determining whether to lease or to buy.

An expanding business usually requires more space to meet inventory and staffing demands. Each move is expensive, with negotiation of a new lease, deposits and other moving expenses biting into the company's capital. Most renters are tired of making monthly lease payments with nothing to show for them. Tired of paying rent? There are several questions to answer when considering a purchase:

Flexibility: Will your business continue to expand? If so, what are your options if you own the building: Renovation or rebuilding? Does the building have broad market appeal for resale purposes?

Investments: Is real estate a good investment at this time, or would the investment be of better use put back into the business?

Control: Does your lease offer the control over neighbors, parking and maintenance that you desire?

Needs: Is the building right for your needs? What about the needs of future tenants? Will it require major reconstruction to sell it later? Does the lease agreement meet your needs?

Alternatives: What else is available in the market?

Ownership offers several benefits

Appreciation: Every dollar the building appreciates and every dollar applied toward the mortgage principal translates into a dollar of equity.

Tax advantages: Mortgage interest and depreciation on the building generally are fully deductible for both state and federal tax purposes. Moreover, costs associated with the loan may be deductible.

No rent increases: You will no longer be subject to escalating rents.

Permanence: You will never again have to worry about renewing leases upon expiration. Also, all improvements and additions belong to your business and may increase the value of the property.

Affordability: The most common reason cited for not buying is lack of down payment. However, the SBA program offers financing of up to 90 percent of the commercial land and building price.

Savings: With the inherent savings of ownership, you would be able to devote more working capital to increasing sales and profits.

Once you have reviewed all of these key points in detail and you've come to the conclusion that purchasing will be the better option, you now need to consider financing alternatives.

A CDC/504 SBA loan may be the answer as an alternative to conventional real estate loans, which require sizable down payments, and offer terms that are less than attractive for the business owner.

The CDC/504 loan program is a long-term financing tool for economic development within a community. The 504 program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings.

Typically, a 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the CDC (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped.

To learn more about the SBA Loan Program, call Sunrise Bank of San Diego at (858) 625-9050.


Submitted by Sunrise Bank of San Diego

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