By purchasing a building, business owners can be paying themselves.SAN DIEGO — Small business owners who are tired of paying rent and have a lease renewal on the horizon, should know there’s an alternative to renting — building ownership via a U.S. Small Business Administration (SBA) loan program called SBA-504.

“Instead of writing a check to a landlord every month, business owners can be paying themselves,” said Kurt Chilcott, president/CEO of CDC Small Business Finance, a leader in SBA commercial real estate lending and SBA-504 loans.

According to CDC Small Business Finance, the top three reasons to own a commercial building are:

1. Equity — Every payment made is an investment in a business owner’s future. The owner can leverage the accumulated wealth for further business growth or new options when the time comes to retire.

2. Stabilize occupancy costs — Rent increases would no longer apply; the monthly payment is always the same. SBA-504 loans offer a fixed rate for 20 or 10 years.

3. Preserve cash — In many cases, the monthly payment to own is less than the rent. Small business owners can use the retained working capital to buy inventory, hire new employees, purchase needed equipment, or invest in other strategies to grow or improve the business.

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

There are also other advantages of SBA-504 financing, including the “Green” provision, which allows higher lending amounts for small business owners who want to buy or upgrade commercial/industrial buildings and make them more energy efficient. Buildings over $20 million can be financed using the SBA-504 program. Small business owners need only demonstrate a projected 10 percent reduction in energy costs by deploying one or more energy-saving improvements (e.g., insulation, lighting, heating/air conditioning).

SBA-504 loans are provided in partnership between certified development companies and banks. CDC Small Business Finance, for example, works with over 70 banks and other lenders.

The firm said the current SBA-504 rate is 4.94 percent, fixed for 20 years.

CDC Small Business Finance noted that thousands of small businesses in California and Arizona have purchased a building using the SBA-504 program. Some of their stories can be seen by clicking here.

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Publication date: 8/4/2014

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