The SBA 504 loan - Commercial Construction Loans
The SBA 504 Commercial Construction Loan allows Small and Mid-Sized Businesses to build an "owner occupied" commercial property from the ground up. "Owner Occupied" for SBA construction loans means your business occupies 60% or more of the new space. (51% for an existing building).
10% Down Commercial Financing (90% Loan to Cost)
The 504 construction loan offers great leverage which helps you preserve capital, maximize tax deductions and control your overhead.
Most business owners are interested in conserving cash when it comes to commercial financing and the 504 loan allows to keep more of your working capital than most any other available commercial loan.
Large Project? Go Green
The 504 allows loans up to $10,000,000+ if you Go Green by using or producing renewable energy. There are some caveats to it, but essentially you have to be able to show proof that you will be reducing your energy consumption by 10%.
One of the easiest ways to build an energy efficient building is with modular construction or prefabricated walls. Modular construction uses "structurally insulated panels" which typically cut construction time in half and reduce energy consumption by 50% or more for many structures.
Small and mid-sized companies that incorporate energy saving features in the construction of a new building qualify for higher loan amounts.
The 504 Loan Helps Preserve Working Capital
- The SBA 504 loan allows 10% down payment or equity injection for commercial construction projects and you can come out of pocket the down payment or use land that you already own as equity. (If you've owned the land for 2 years or more you may be able to use current appraised value).
- The 504 allows you to finance construction costs, closing costs and soft costs including interim construction interest, architectural fees, surveys, title insurance, engineering fees and even moving costs associated with calibrated equipment. This allows business owner to keep your cash for other business expenditures.
- The 504 allows you to finance the cost of long term machinery and equipment with a useful life of greater than 10 years. This is a big benefit for any business utilizing expensive equipment to manufacture products or provide services.
- The 504 program offers long term amortizations - typically 25 years for the first mortgage and 20 years for the second mortgage. The second mortgage is a "below market" fixed rate and there is no balloon or call provision on either loan. It is a "one and done" proposition - there is no "re-qualifying" later. This allows you to better control your overhead and plan for the future.
- The 504 allows you to initially lease up to 40% of your newly constructed space to another business. After 3 years you must reduce the amount of leased space to 20% for new construction projects, but having the ability to lease extra space can help offset your costs. (For existing buildings you can permanently lease up to 49% of the your space).
The 504 Loan is for Mid-Sized and Small Businesses
- The 504 is technically a "Small Business" program, but the generous loan amounts* and relatively high asset and profit limits make it available to larger businesses. The current requirements state that a business must have a tangible net worth of less than $8.5 million and net profits - after tax - of no more than $3 million on average for the last 2 years.
- The 504 allows higher loan amounts for those electing to go green. You can install green or renewable energy equipment at your facility and reap the long term rewards of lower costs and realize the initial up front tax deductibility and incentives offered by many states and the federal government. Or you can build a more energy efficient building to qualify.
- Green or renewable energy producers and manufacturing facilities can also qualify for the larger loans.
*Maximum financing of up to $10,000,000+ is available in the following situations:
- Manufacturing facility in a "multi-use" building
- A business that qualifies for the Green Energy initiative of reducing energy consumption by 10%
- A business that is producing Green or Renewable energy.
Please contact us at 1-800-414-5285 to find out how our 504 commercial construction loan expertise can benefit your business and bottom line.
