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Top 3 Reasons Small Businesses Should Buy A Building Instead of Leasing

April 24, 2019 | Small Business Loans
cre, commercial real estate, buy building, building, building purchase

The information in this post about using SBA 504 loans to buy a commercial or business building is current, as of April 2019.

Small business owners who are tired of paying rent for their business or commercial building or have an upcoming lease renewal, should know there’s an alternative to renting – buying your own building through an SBA 504 real estate 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. SBBA 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 an SBA 504 loan?

There are many reasons to own your building instead of renting. The Top three reasons to own a commercial building are:

• Build equity – every payment made is an investment in a business owner’s future. They can leverage the accumulated wealth for future business growth or new options when the time comes to retire.

• Stabilize occupancy costs – you don’t have to worry about unexpected rent increases  – the monthly payment is always the same.  SBA 504 loans offer a fixed rate for 25, 20 or 10 years.

• Preserve cash – in many cases, the monthly payment to own is less than the rent. Small business owners can use that working capital for other things that can help grow their business, like to buy inventory, hire new employees, equipment financing or invest in other strategies to grow or improve the business.

.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 are tax deductible.

25-year SBA 504 loans are now available

The Small Business Administration (SBA) recently started taking applications for the new 25-year term SBA 504 loan, 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.

What is the ‘green’ provision?

Small business entrepreneurs are discovering other advantages of SBA 504 financing, 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, smallbusiness 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 “Top 3 Reasons Small Businesses Should Buy A Building Instead of Leasing”

  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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