Advantages of Using an SBA Loan for Property Buying
The Small Business Administration has created a variety of avenues for small businesses to achieve success. However, the 504 program is one of the most advantageous SBA loans for those looking to purchase a building. Not only can the 504 loanbe used to buy, improve and construct commercial properties, it can also be used to purchaseessential equipment and machinery. Beyond the obvious benefits, the design of the loan has several advantages for small-business owners.
These loans are structured in a way that theasset being acquiredis the collateral. Therefore, as the business owner, you do not have to provide any additional assurances. Also, the one main risk to you is the loss of the acquired asset, in this case the equipment or property being purchased.
Long-term Repayment Options
504SBA loans also come with generous repayment options. For a fully amortized real estate loan, the term limit is 25 years. This extended timeline equates to lower monthly payments and less strain on cash flows.
Many loans come with a balloon payment attached, a large sum payment at the end of the loan. These payments often force business owners into a cycle of refinancing. Through the 504 program, there is no balloon payment.
SBA loans typically come attached to some of the lowest interest rates you will find for commercial property loans. In addition to providing low-interestrates, these rates are fixedfor the full loan term. Thisis a tremendoussecurity to small businesses because they don’t have to worry about fluctuating occupancy rates.
Minimal Down Payment
Traditional commercial property loans can require as much as 40 percent down, but with an SBA loan,the down payment may be as low as 10 percent. However, these numbers are dependent on the terms and use of the sought-after building as well as the history of the business. For instance, if a property is deemedsingle use, and if the companyisn’t at least 2years old, then the SBA may require a down payment of around 15 percent.
SBA loans provide significant advantages over most traditional or conventional loans. While these loans allow for a variety of uses, the realbenefits are in the structure of the program. Most small businesses, especially those just starting out,do not have the means for collateral, large down payments or futureballoon payments, making SBA financing attractive for the purchase of commercial property.