Community Business Finance is celebrating our 10th anniversary, and in honor of this milestone we want to share 10 great reasons the 504 Loan Program is a better loan for your business financial needs. As a reminder, the 504 Loan Program provides businesses with financing for major fixed assets such as office buildings, retail buildings, warehouse facilities, machinery and equipment.
Owning your business property offers control, consistency, and financial advantages that leasing cannot provide. Two benefits of ownership include tax savings and building equity. The interest on the mortgage loan is tax deductible and you can take annual depreciation deductions on property taxes. Mortgage payments are usually less than rent amounts, which frees up more of your available cash each month. Paying a mortgage instead of rent lets your money continue to work for you instead of your landlord.
2. Below market, fixed interest rates
In its 504 Loan Program, Community Business Finance finances 40% of the total project cost with a second lien loan. This loan rate is usually below market and is calculated based on the debenture rate for the month the loan is funded. A conventional lender finances 50% of the project cost with a first lien loan. These two loans each have a monthly payment and the blended interest rate is still below straight conventional loan rates.
3. Long term financing
504 loans for property have 20-year amortizations. Not only does this mean that you will enjoy the security of a fixed interest rate for 20 years, but it also allows for smaller monthly payments. Again, this reduces your monthly debt obligations and allows you to build up your cash reserves for emergencies or other uses.
504 loans for equipment have a 10-year amortization, whereas with conventional loans the amortization period is usually much shorter, even half the length of a 504 loan.
4. Lower down payments
Conventional loans and 7(a) loans can require a higher down payment than 504 loans. The 504 Loan Program provides 90% financing of the total project cost for most commercial real estate and equipment purchases. A 10% down payment allows business owners to preserve working capital for business growth and retains liquidity to meet operating needs.
5. No out-of-pocket extras
With any loan there are closing costs. These include loan origination fees, title insurance, survey, appraisal fees, etc. These can really add up. In a conventional loan, the borrower usually pays these costs up front. With a 504 loan, these costs are rolled into the loan, saving the borrower another outlay of cash.
6. No surprises
With a 504 loan, you will avoid the restrictive covenants and balloon payments often found in conventional loans. No balloon payments, calls or negative loan covenants enable borrowers to have more control, more peace of mind and less lender micro-management.
7. Finance larger projects
The maximum debenture for a 504 loan is $5.5 million, but this amount only refers to the SBA guaranteed portion of the project. There is no maximum limit placed on the participating lender's portion of the project.
Start-up companies don't have the financial history that lenders require during the loan process. Banks are conservative lenders and may not be willing to take a risk on a new company. The risk for the lender is lessened when the SBA is a partner.
Sometimes, a new business is so unique that the building they need is considered a special purpose property that can deter lenders. Special purpose buildings are typically harder to finance, because the bank would have a difficult time selling the asset due to its special nature if the loan defaulted. Community Business Finance has relationships with a variety of lenders that enable us to find the right lender for a riskier loan.
There is a prevailing myth that a 504 loan takes too long to prepare and process. While it is true that in the past the SBA was bogged down with laborious paperwork and sluggish processes, many things have changed. The SBA has worked intently to speed up their processing times and reduce their paperwork. According to the SBA's website, "A credit decision on a complete loan package is usually made within ten working days after it is received by the SBA." In fact, the turnaround on approval can be as quick as 48 hours when all the right information has been gathered and submitted.
10. Community Business Finance is the perfect partner
As experts in the 504 Loan Program, Community Business Finance loan officers are efficient in gathering the right information. They use electronic documentation for processing and submission, increasing productivity and allowing the loan process to move faster. Our loan underwriter will assemble the company, financial and personal information required for your application and the SBA loan package. Once you have signed your loan documents, we submit them to the SBA for you.
Why settle for just any loan when you can reap the benefits of a better loan? The 504 Loan Program will save you money, allow you to keep more of your cash reserves, and better serve your financial future.
You can Get Started on our website, or contact our offices:
In Texas call Bill Ebersole at 713-457-1650, ext. 201, or email him at firstname.lastname@example.org.
In Louisiana, call Jeanne Bergeron at 1-800-462-1017 or email her at email@example.com.