Small companies looking to invest in ownership of their own facilities often find that the down payment is a lot easier than getting approved for a loan. In part, that’s because traditional lenders often require a long operating history with at least two years of constant profitability, as well as evidence of income in addition to the evidence of cash reserves to meet the needs of a down payment and other operating expenses. Their equations for calculating these things are often based on generalities that don’t apply evenly to all industries, too, leading to a one-size-fits-all product that gets less accessible the smaller your business gets and the more niche its operations tend to be. Luckily, the federal government recognizes that, which is why the Small Business Administration’s SBA loan program for real estate exists.

Financing Real Estate Through the SBA’s 504 Loan Program

Small businesses with incomes below the current year’s threshold can qualify for long-term fixed-rate amortizing loans backed by the guarantee of the SBA for at least a portion of their value. Terms range from 10 to 20 years on average, and businesses must plan to occupy and use the facility in question. Some of the floor space can also be leased, which provides a lot of incentive for companies to invest in multi-unit buildings, but a majority of the floor space must still be used for the primary purposes of the business borrowing for the purchase.

Often, these loans have prepayment restrictions through their first decade because they are designed to help companies grow, and the restriction encourages reinvestment in growth over the elimination of low-cost debt. After a point, though, those restrictions ease, providing you with the opportunity to achieve early repayment if your company’s success supports it.

Qualifying for a Loan

SBA loan packages require companies to show they are financially healthy, which means a business plan that substantiates your income and assets, demonstrates where your down payment capital is coming from and makes sensible projections about future income. The Administration’s mandate also requires companies to contribute to the economic health and development of the communities where they operate, so business plans should emphasize how job creation and growth will be served by the loan. This can be in the form of jobs created internally or increased demand from your local subcontractors and suppliers that will lead to new jobs in the service of your business. For more information, talk to a preferred SBA loan provider who can fill in the details about this year’s program requirements.