It may seem that now is not a good time to purchase a building for your business. You’ve heard that financing is hard to come by and that banks aren’t looking to lend. Property prices are low, but so is available cash for a down payment on property. And what about money for build-outs, equipment, furniture and fixtures?
The good news is that businesses can take advantage of attractive real estate prices and move into a purchase with as little as 10 percent down and low fixed-rate financing with programs such as an SBA 504 loan.
And it’s not true that banks aren’t lending, says Roger Schnorr, senior vice president of business banking at Old Second National Bank.
“We are lending about $31 million in new money each month, and about one-third of that is commercial loans,” says Schnorr.
For businesses interested in purchasing owner-occupied real estate, in which the company occupies more than 50 percent of the space, there are financing programs available and the timing may be good for buyers.
“Every monthly loan payment a business makes is money toward building equity,” Schnorr says, suggesting that business owners sit down with their banker to discuss whether a property purchase makes sense for them.
Smart Business spoke with Schnorr about the strategies businesses can employ to purchase owner-occupied property rather than sinking dollars into lease payments each month.
What kinds of businesses are in the best position to purchase owner-occupied real estate?
Any business can consider a purchase today, but first it is recommended that you sit down with your trusted banker and/or accountant to review the numbers. If your business is planning to occupy the commercial space for quite a few years, it may be worthwhile to consider buying, no matter what type of business you operate.
The combination of lower property sales prices, attractive loan terms/interest rates and potentially reduced out-of-pocket expenses may prove to be an attractive opportunity to consider buying.
Tell me more about the SBA 504 program.
A very attractive program for businesses is the Small Business Administration 504 loan. This requires as little as 10 percent of the total project cost as a down payment from the borrower. The loan can cover up to 90 percent of the total cost of real estate, furniture, fixtures and equipment.
For example, if a business purchases real estate that costs $800,000 and furniture/fixtures that cost $200,000 for a total project cost of $1 million, the buyer must provide a $100,000 down payment. Then, $400,000 is placed in a government debenture, and 50 percent of the project cost is financed by the bank.
The government stimulus package promotes reduced fees for the SBA 504 program.
