The 504 loan is back and better than ever!!!
For a number of years, the owner occupied real estate transaction has been dominated by the SBA 7A program. But now, this is about to change. With the Fed increasing interest rates that result in a higher Prime Rate, the typically variable rate 7A loan will begin to look less attractive to borrowers wishing to construct or purchase their own building, or to do tenant improvements, and/or buy equipment.
The SBA 504 loan, which is a fixed rate loan, is again becoming the first choice for commercial real estate. The 504 loan rate is tied to the ten year treasury bill rather than the prime rate, so its future rates look more competitive, resulting in savings of tens of thousands of dollars over the term of the loan.
The 504 loan has historically been recognized as the best lending vehicle for owner occupied real estate. The reason for this is clear, because the 504 loan is a fixed rate loan with a ten percent down payment, as well as having lower overall costs than the 7A loan.
Also, there have been a number of changes to the program this year that will make the program more borrower/small business friendly.
The first is that we have added a 25 year loan to the existing stable of ten and twenty year loans. Obviously, this will result in lower monthly payments, while also incorporating the fixed rate and low interest rate features of the existing program.
Franchise regulations have been greatly simplified to include an SBA sponsored eligible franchise list which allows us to process the potential franchise transaction more quickly and with less paperwork.
For businesses that can take advantage of solar energy, the ability to create at least 10 percent of the total energy used on site will result in a per project 504 loan limit (up to 40% of the total project) of $5,500,000, and allow the owner to do other projects under the 504 up to a limit of $16,500,000.
The regeneration of the refi without expansion debt refi program allows the 504 loan to refinance eligible existing debt up to 90% of appraised value, and up to 85% for special purpose or cash out projects. Yes, you heard it right. The 504 refi program allows up to 20% cash out on a refinance for operating expenses paid within 18 months of loan funding.
So with interest rates rising for the foreseeable future, the 504 loan is the best vehicle for owner/user small businesses to finance the purchase or construction of real estate and equipment.
Call us to explore your project and see how the 504 program can save you money and preserve your working capital.
Remember that we can create your entire loan package, at no cost to you up front, and then present it to banks throughout Southern California to assure you get the best rate and terms. Don’t waste time going from bank to bank. Call US First!!!
|The EF Team|
|504 vs 7a|