National Pi Day is a great opportunity to review the “slices” of support an SBA 504 loan offers to entrepreneurs across the United States.
National Pi Day, which is celebrated on March 14th, is not just about commemorating the mathematical constant π. It is also an excellent opportunity to review the different types of support an SBA 504 loan provides entrepreneurs across America interested in buying or constructing their dream building.
An SBA 504 Project, which is financed through three distinct entities, including a third-party lender, a certified development company, and a small business owner, is often referred to as a pie. The size of the pie slices can vary based on the business and real estate risk.
If an existing business is purchasing or constructing an office, warehouse, or retail building, the SBA 504 loan program employs the 50-40-10 model, in which 50% of the project pie is financed with a 1st lien conventional loan, 40% is delivered through a 2nd lien SBA loan, and 10% represents the business ownerʼs equity investment (commonly referred to as a down payment). However, if the business is moving into a special-purpose property, the pie slices would fit the 50-35-15 model. In this case, the business owner must contribute an additional 5% to the project pie to mitigate the additional real estate risk.
When a company is in a startup phase (less than two years of operations), the pie shifts from 50-40-10 to 50-35-15, assuming that the property is multipurpose. That additional 5% of the pie mitigates the risk associated with a new business. However, if the company is in the startup phase and will occupy a special-purpose property, the pie model shifts to 50-30-20 to account for the additional risk of the real estate in addition to the startup challenges.
Although the SBA loan program provides critical financial backing, the entrepreneurial spirit is what drives small businesses forward. National Pi Day serves as a reminder of the infinite possibilities that lie ahead for those willing to innovate, adapt, and pursue their dreams.
