UCEDC’s Senior Director of Financial Programs, Ellen McHenry, Explains Why Now is the Time to Purchase Owner-Occupied Commercial Real Estate

Do you know about the Small Business Administration (SBA) 504 loan program? If not, you should.

Why 504? Why now more than ever?
Using a 504 loan, eligible businesses can finance up to 90% of the costs of buying or improving real estate and related equipment, as much as 40% of the costs fixed for up to 25 years at the SBA’s historically low rate of 2.602%. The current prime rate is 3.25%.

The 504 program is a participation loan with a bank and the SBA. The borrower can get up to 90% loan to value (LTV), with a conventional loan from a financial institution you may have to put down between 20%- 30% of your own cash, and the bank will only lend 70% or 80% of your property’s value.

How it works: a borrower with at least two years of operating history contributes 10% equity. The bank provides up to 50% of the project and takes a first mortgage, the SBA provides up to 40% and takes a second mortgage and the borrower puts 10% down.

The SBA portion:
40% of the purchase price

20 or 25 years

Interest rate:
February’s rate starting at 2.602%, fixed rate for the term of the loan

SBA fees:
2.60% rolled into the SBA mortgage

Use of Proceeds:

  • Purchase of owner-occupied commercial real estate. Borrower must occupy at least 51% of the property
  • Improvements to the property may be included in the overall project
  • Major equipment
  • Soft costs such as site and zoning approval, and appraisal and environmental report costs

Ineligible Uses:

  • Investment properties
  • Working capital
  • Inventory
  • A/R Financing

Remember, benefits include: Up to 90% financing of your project, including renovations and up to 40% of costs financed for 25 years at historically low fixed rates.

Our lenders are standing by for your calls; 908-527-1166