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Buying a Building for a Business: Why Buying Can Be Better Than Leasing in 2020

December 4, 2020 | Small Business Loans
cre, commercial real estate, buy building, building, building purchase

If you’re a small business owner tired of paying rent for your business or commercial building, or have an upcoming lease renewal, you’ve probably considered buying a building for a business you own. As it turns out, there’s a government-backed loan that can help you buy a building for your business: the SBA 504 loan.

“Instead of writing a check to a landlord every month, business owners can be paying themselves – investing in their future,” said Kurt Chilcott, president of CDC Small Business Finance, the nation’s leader in SBA commercial real estate lending and 504 loans.

SBA 504 loans are provided in partnership between certified development companies, or CDCs, and banks. SBA 504 loans provide small business owners below-market, fixed interest rates.

Related: Should I get more than one SBA 504 loan? Why these business owners did

WHAT ARE THE BENEFITS OF BUYING A BUILDING FOR A SMALL BUSINESS?

There are many reasons you should consider buying a building for your business.. According to our loan experts, the top three reasons to purchase a commercial building for your business are:

Case in point: A California-based manufacturer used a $2.4 million SBA 504 loan to buy a building. His company expects to save $2,000 a month by owning the building versus renting it.

Another benefit of SBA 504 loans is tax savings. Just like a home mortgage, interest on commercial real estate loans is tax-deductible.

What are my options for using an SBA 504 loan when buying a building for my business? 

The Small Business Administration (SBA) started taking applications for the new 25-year term SBA 504 loan in 2018, designed to complement the 20-year and 10-year terms traditionally offered with 504 loans.

Related: In uncertain times, how can the 25-year SBA 504 loan help my business?

The purpose behind lengthening the payment cycle on a 504 loan is to cut monthly loan payments for borrowers, considering rising operating expenses and interest rates.

DON’T FORGET ABOUT  THE ‘GREEN’ PROVISION WHEN BUYING A BUILDING FOR A SMALL BUSINESS

Small business entrepreneurs are discovering other advantages of SBA 504 financing when buying a building, including the “green” provision, which allows higher lending amounts for small business owners who want to buy or improve commercial or industrial buildings to make them more energy-efficient.

To qualify for the Green Provision, small business owners need to demonstrate a projected 10 percent reduction in energy costs by implementing one or more energy-saving improvements (e.g. insulation, energy-efficient lighting, more efficient heating/air conditioning, etc.).

Want to learn more about how you can get an SBA 504 loan to buy commercial real estate? Tell our loan experts about your goals, and they’ll work to match you with a financing plan that best suits you. Let’s talk! Email us at loaninfo@cdcloans.com or give us a call at (619) 243-8667.

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2 responses to “Buying a Building for a Business: Why Buying Can Be Better Than Leasing in 2020”

  1. It’s interesting to learn that there’s this SBA-504 program that would let small businesses have a loan to be able to purchase their own building as your article mentioned. That sounds like a mortgage for us who are out of the business market. In any case, it would still prove to be quite a great help for business owners as it would be a big leap to growing. I’ll try to read more about these business building loans to learn more about them in case I would join the business market. Thanks!

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