Business owners may be overlooking a program that can help them expand while preserving working capital.
Small businesses deserve special recognition for helping our communities thrive. Not only are they run by courageous entrepreneurs who work tirelessly, they are also sponsors of little league teams, community fundraising donors, and employers of friends and family. They are the local coffee shops that greet you by name each morning, the jewelers who help make engagements and anniversaries extra-special, and the local restaurant where the crowd goes after the football game.
I think most small business owners would agree… running a small business is not about getting rich. It’s about doing what you love. It’s about sharing your passion. It’s about putting food on the table. It’s about working hard and giving back.
Helping Small Businesses Succeed
Let’s face it… small business owners need financial support in order to invest in their business and expand. Whether you own a seasoned business or hope to start one someday, there are lending programs designed specifically for you.
One such program is the SBA 504 Loan Program, which was created by the U.S. Small Business Administration (SBA) to provide small businesses with long-term, fixed-rate financing to purchase, construct or renovate their own facility and/or purchase equipment. With a 504 loan, a small business owner can expect 90-percent financing in most cases, a long-term fixed interest rate and no future balloon payments.
Thousands of small businesses utilize 504 financing each year. The most common are industrial companies, such as commercial printers, wholesalers, manufacturers or distributors; professional practices like doctors, dentists, accountants, lawyers or architects; and service providers, such as retail stores, auto repair shops, health clubs or daycare centers. Some examples of recent 504 transactions include:
- A stalled expansion gets back on track. A wholesale bakery, nearing the end of its lease, received news their property was being sold and needed to be vacated. Facing an inevitable move, the business owner decided to make the most of the situation and began to seek a property that would not only house the business, but would also allow for expanded production.
Nearby land was purchased, and construction of a larger building began. However, due to cost overruns, construction came to a halt. The borrower was in need of a higher advance rate than the bank could offer. In hopes of getting construction back on track, the local lender introduced the borrower to the 504 Loan Program, and they found it to be the perfect solution.
The participation of the 504 Loan Program allowed the bank to offer the small business a 90-percent advance, which gave it the financing needed to pay contractors and finish construction. The borrower now has control of the business property expenses and will realize asset appreciation while also enjoying ample space to produce, distribute and sell an expanded line of bakery items.
- A manufacturer says goodbye to its expensive building lease. A local manufacturer had been leasing space on Industrial Drive since incorporating in 2007. The company was paying monthly rents of $21,875, plus real estate taxes. With lease expenses scheduled to rise in the coming year, the owner of the business utilized the 504 Loan Program and made an offer to purchase the property for $2 million. The offer was accepted, and the combined monthly payment on the property now totals approximately $16,000/month—a savings of nearly $6,000 over leasing. Plus, the borrower has no future lease fluctuations to worry about and can take advantage of added tax benefits.
Fueling the Engine
There are some misconceptions associated with SBA loan programs. The most common myth is the amount of paperwork or length of time required to complete an SBA loan. The truth is, a 504 loan is not much different than a conventional loan as far as timing and documentation, and can be closed in a reasonable amount of time. Furthermore, many fear the fees associated with the program may be too high. In reality, these fees are often offset in a short amount of time by the low, fixed interest rate. Plus, there are no future balloon payments or property valuations to worry about.
It’s been said over and over that small businesses are the engine that powers our great country. SBA has lending programs designed to fuel the growth of these small business powerhouses, allowing them to do what they do best: create jobs, spur economic development and support our communities. iBi
Marcia Abner is vice president of Growth Corp, a Certified Development Company focused primarily on SBA 504 loans. For more information, call (217) 787-7557 or visit growthcorp.com.