Five Ways the SBA 504 Loan Fits Into a Business Strategy

July 10, 2020

With the interest rate for an SBA 504 at a historic low, small business owners are taking a fresh look at purchasing commercial real estate with this loan product.  As they forecast their business strategy in response to the current landscape, the SBA 504 loan is a valuable tool. It can improve estate planning options and benefit the business’s bottom line.

Business owners are favoring the sub-2.5% SBA 504 commercial real estate loan for a financing option and as part of their strategy.  There are multiple ways the loan can benefit a business, here are five to consider:


Currently Sub 2.5%, the Below-Market, Fixed Rate Offers Predictability

The historic low rate is noteworthy. – especially because the SBA 504 rate is fixed. Borrowers secure the low rate for the life of the loan.  The business will always know its occupancy cost and not be subject to changing tenant lease or lending terms conditions.   This is key for accurate near-term planning and future forecasting.

Rates have ranged from 3-5% in recent years. As of July, 2020, they’ve dipped well below those numbers which brings even greater value and savings to the business.

Effective rates for the SBA 504 loan – new purchase (from July 9 – August 5, 2020):

  • 25-year Rate – 2.406%
  • 20-year Rate – 2.341%
  • 10-year Rate – 2.387% 

Only 10% Down helps Retain your Essential Operating Cash

Conventional bank loans traditionally require a 20 to 30% down payment. The SBA 504 Loan has a down payment minimum of 10%.  Businesses are able to retain the additional 10 to 20% of the cash when buying a building. The difference is an advantage allowing the business owner to leverage the money saved as needed for their business.  From managing operations to adding new equipment to growing the business, the business can use the money in productive ways instead of as a down payment on the loan.


Refinance a Non-SBA-Guaranteed Conventional Loan to be More Affordable

The refinance program offered by the SBA 504 loan can be used to pay off existing non-SBA-guaranteed conventional debt with a new loan at a lower cost.  This refinance option uses an SBA 504 for the new loan.  The 504 makes the loan more affordable.  In most cases it offers lower cost interest rates and longer length of repayment terms. Several non-SBA-guaranteed conventional commercial loans can be consolidated and refinanced at below-market rates. The main benefits include valuable cash flow and monthly savings which can be reinvested back into the business.

Effective rates for the SBA 504 Refinance Program (from July 9 – August 5, 2020):

  • 25-year Refi Rate – 2.408%
  • 20-year Refi Rate – 2.342%
  • Note: An SBA 504 loan cannot be refinanced through this program, it is only for non-SBA-guaranteed conventional loans


25-year Term Improves Cash Flow

The longer repayment period means more affordable monthly payments, ability to qualify for larger amount of debt and, ultimately, a positive effect on cash flow.  With the SBA 504 25-year longer term loan, you can control your occupancy cost and keep it low and predictable. The savings can be reinvested into the business to support growth or changes for a business focused on recovery.  Although the ever-changing regulations and economic conditions may keep you pivoting, your 25-year loan will bring stability.

The SBA launched the 25-year loan in 2018 and it has quickly become a popular option.  Over $1.5 billion was approved in FY 2019.


Multiple SBA 504 Loans to Drive Growth while Keeping Costs Stable

When small business owners enjoy success and growth opportunities present themselves, they can turn to the SBA 504 loan more than once. Whether they need a larger property, additional sites for expansion or new equipment to handle operational growth, the SBA 504 can be the answer. Due to the fixed rate, multiple SBA 504 loans provide predictability for business operations and allow the owner to build their business strategy with more accuracy.  In addition, between building a track record of on time payments with an SBA 504 loan and because the SBA looks beyond revenue, considering job creation and impact on the local community, the business owner is often well positioned for a higher chance of approval than they may find at a bank.


Does a Purchase or Refinance fit your Business Strategy?

With interest rates dropping so low, now is a great time for small business owners to take a look at their growth, investment or spending. Whether they want to stop leasing and secure a home for their business or make a major equipment purchase, the SBA 504 program offers small businesses a number of significant advantages.

As the nation’s leading SBA 504 commercial real estate lender, our loan experts can guide you through this important business decision, step by step and in easy-to-understand terms. Reach us at or (619) 243-8667.  For future industry updates and news, sign up for our blog