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 or to expand an existing facility.
"Owner Occupied" for ground up small business construction loans means your business occupies 60% or more of the new space. (51% if renovating an existing building).
100% Financing is available via the 7a program for established businesses for general purpose or multi-use buildings as well as doctors, dental practices, veterinary clinics and occasionally for a few other businesses including funeral homes and independent pharmacies.
The down payment for either program can also be borrowed in certain instances. We will be providing more specific information re: the 100% program in the near future, but please contact us at 1-800-414-5285 for more info.
10% Down Commercial Financing - 90% Loan to Cost
The 7a and 504 construction loan programs 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 these programs allow you to keep more of your working capital than most any other available commercial loan.
SBA Construction Loan Benefits
- 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 7a program allows up to 100% financing.
- The 504 and the 7a allow 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 allowing business owners to keep their cash for other expenditures.
- The 504 and the 7a allow you to finance the cost of long term machinery and equipment. The 504 requires that the equipment have 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.
- Both programs offer long term amortizations - the 504 is typically a 25 year first mortgage and a 20 year second mortgage while the 7a is just one loan for 25 years. The second mortgage for the 504 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 - allowing you to better control your overhead and plan for the future.
- Both programs allow you to initially lease up to 40% of your newly constructed space to another business and for existing buildings you can permanently lease up to 49% of the commercial space.
The 504 Loan - Not Just For Small Businesses
The 504 is technically a "Small Business" program, but the generous loan amounts* and net worth and and income limits make it available to mid sized businesses. Current SBA guidelines allow a business to have a tangible net worth up to $15 million and net - after tax - profits of up to $5 million on average for the last 2 years.
The 7a allows loans for larger businesses as well, but the maximum loan is $5 milllion.
Large Project? Go Green
The 504 allows higher loan amounts and the ability to fund multiple projects if you use or produce renewable energy or if you make a building 10% more energy efficient.
Multiple projects upwards of $15,000,000+ (possibly as high as $20 million) are possible and there are numerous local, state and Federal incentives for building green or for retrofitting a building to make it more energy efficient...or using or producing renewable energy.
Click here: Green Energy for more info.
Commercial Construction Loan - Other Options in Current Market
Most lenders have recovered nicely from the Recession and there are now many viable options for commercial construction financing including:
- CMBS Loans (Commercial Mortgage Backed Securities)
- Life Companies
- EB-5 Financing (can be combined with other forms of financing including SBA 504)
- Traditional Bank Loans
- USDA B & I (Business & Industry) Loans (property must be rural or semi-rural)
- HUD Loans (for multi-family and senior care)
- Single Tenant Development loans
Please contact us at 1-800-414-5285 for more info regarding 504 commercial construction loans or one of these other types of financing.
A Note About Modular Construction
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.
Please click here for more info.