As temperatures rise, so does our energy consumption, which can make staying cool on the Gulf Coast a costly endeavor. Smart business owners find ways to reduce their company's energy consumption to lower operational expenses without impacting quality or productivity.
Thanks to a great program from the SBA, business owners looking to renovate a facility or purchase commercial real estate have more incentives than ever for going green. The 504 Loan Program is an effective way for these businesses to get real estate financing with below market fixed interest rates and a low down payment. Through the 504 Green Initiative, renovation or new construction projects that include energy-efficient upgrades benefit the borrower, the economy, and the environment. By going green, business owners can dramatically increase their long-term savings, as well as reduce their out-of-pocket costs.
Raising the Cap to Finance Concurrent Projects
Under SBA regulations, a business is capped at $5 million in total 504 Loan financing. However, by including methods of reducing energy consumption, this cap is raised to $5.5 million per project, with no limit on the number of projects that qualify as long as the total outstanding gross debentures issued for the business, including its affiliates, has not exceed $16,500,000.
504 Loans can be used to purchase land, real estate plus improvements, new construction, and equipment. Closing costs and soft costs can also be included. The SBA guaranteed portion of each loan is up to 40% for a maximum of $5.5 million, and a commercial lender funds at least 50% of the total project cost, with no limit on this first lien.
This means that business owners that have previously reached their SBA maximum can still qualify for additional loans, as long as the projects meet the green criteria and the total amount of 504 financing has not exceeded the $16,500,000 maximum. This is great news for businesses that want to finance multiple projects.
First, your business must qualify for a 504 Loan. These qualifications are explained in our 504 School. To qualify as a green energy project, one of two criteria must be met. First, the project must reduce your energy consumption by at least 10%. This means your business will use 10% less energy, not simply reduce your energy costs by 10%. Or second, the upgrades must produce at least 10% of the energy used from renewable sources, such as solar power.
Reducing Energy Consumption
The SBA designates new construction or the purchase of an existing facility as a “new facility.” To be considered a green project, the new facility must replace an existing facility and must be located in the same local area. The borrower must be able to demonstrate that the new facility will use 10% less energy than the existing facility. In addition, the energy consumption between the two facilities must be compared on a square footage basis. Upgrades for reducing energy consumption include new HVAC, lighting, windows, insulation, and building automation.
Generating Renewable Energy
Projects can also include methods of generating renewable energy, as long as it provides at least 10% of the energy used by the facility. In addition, all improvements or equipment required to generate the renewable energy must be included in the 504 project costs. Upgrades for renewable energy sources include installing solar panels and wind turbines and using biofuels.
The Bottom Line
Energy-efficient upgrades can dramatically reduce energy costs. It is possible to recoup the cost of the upgrades in just a few years depending on the amount of savings. Lower utility bills allow you to allocate more of your working capital for other uses or increasing your emergency reserves.
When your business is ready to sell the building, the money invested in green upgrades adds value to future buyers, which can lead to a greater return on your investment. Including energy efficient design in your building construction or renovation has many advantages, and Community Business Finance can help your business save even more money through its 504 Loan Program.
Fill out a short online form to get started and a loan expert will contact you, or contact our offices directly.
Business Development Director
800-462-1017, ext. 203
713-457-1650, ext. 201