As you consider your goals, remember that it is never too early to start planning for 2021. Whether those needs are 2 months out, or 2 years down the road, preparing for your goals and “what-ifs” will reduce some of the stress when those actual moments do arise.
- Do you want to buy, build or renovate a space for your business?
- Do you have a balloon payment coming due on your commercial mortgage?
- Do you need to buy new machinery or equipment?
- Would you like to refinance your commercial debt into a low, long-term fixed rate?
- Are you considering a business acquisition that would involve the acquisition of real estate?
- Does an owner in your business want to sell his/her percentage of real estate to the other owner(s)?
- Would you like to expand to multiple locations?
It also never hurts to dust off your business plan and re-visit it every couple of years. Compare your current financials to past projections and adjust your goals if necessary.
Help is Available
Many local, state and federal government assistance programs exist for small businesses…consider them your acronym superheroes…SBA, SBDC, SCORE and BAM (Bankers and Mentors)…many of which offer their services free of charge. Share your plans, concerns, and “what-ifs” with these professionals as they’re standing by ready to guide you. They want to see you achieve your goals too!
- SBA– best known for the loan guarantee programs it provides to small businesses in partnership with banks, lending institutions and CDC’s, such as Growth Corp. The two most common SBA loans are the 504 and 7(a).
- SBDC– provide management assistance to small business owners in the form of counseling, training seminars, assistance with SBA loans and technical assistance. SBDC’s aren’t just for start-up’s. Existing businesses that are expanding or reaching into new markets could also greatly benefit from SBDC assistance.
- SCORE– a network of retired business executives, leaders and volunteers who provide free and confidential counseling, mentoring and advice to small business owners nationwide.
- BAM – your local Bankers, Accountants and Mentors can help with everything from strategizing how to best grow your business to offering financial advice. In addition, these valuable advisers can also help you network by introducing you to other industry professionals or service-providers.
Many local, state and federal government assistance programs exist for small businesses…many of which offer their services free of charge. Consider them your acronym superheroes.
3 Ways to Grow, Strengthen and Recover in 2021 with SBA 504
Let’s face it, the Covid-19 pandemic has thrown even the most prepared businesses into chaos. Many companies have slashed budgets and stalled plans during this time of economic uncertainty. However, at some point, economies will come back to life. How are you preparing for the post-pandemic restart? Here are three ways to grow, strengthen and recover for post-pandemic success.
1. Improve Cash Flow
Improved cash flow is of vital interest to all businesses. Business owners faced with high-interest mortgages or upcoming balloon payments can greatly benefit from the SBA 504 Refinance Program. SBA 504 Loans provide access to equity a borrower has built up in real estate while re-amortizing with a low, long-term, fixed interest rate product.
The SBA 504 Refinance Loan is government-backed financing that comes with three huge advantages. One, it offers business owners a below-market, fixed rate and a repayment period of up to 25-years. Two, the down payment requirements are as low as ten percent and are often fulfilled by existing equity in the project. And three, borrowers can elect to get cash out for business expenses. Cash can be taken out for salaries, rent, repairs, maintenance, inventory, utilities, credit cards, lines of credit, etc.
To qualify for refinancing, the mortgage(s) to be refinanced must be at least two years old and originally used for the purchase or improvement of fixed assets. Payment history is important too…no late payments of 30+ days in the past year. Keep in mind…loans that currently have a government guarantee (7a, USDA, 504, etc.) do not qualify for a 504 refinance.
2. Control Overhead Costs
Entrepreneurs typically start their business in a leased facility. In fact, many small business owners think financing a commercial real estate purchase isn’t even an option because they fear the down payment requirements will be too high. However, buying or constructing a new facility with 504 provides a great opportunity for fixing occupancy costs and locking in low interest rates. Other benefits include:
- Builds equity: each payment is an investment in the future
- Occupancy costs are stabilized: rent increases no longer apply and the SBA 504 payment is fixed
- Preserves cash: in most cases, with the 504, the monthly payment to own is less than a rent payment
By locking in a low rate, which is fully amortized for up to 25 years, borrowers see predictable monthly payments. Plus, 504 Loans have no future balloon payments.
SBA 504 loans also allow borrowers to roll closing costs, soft costs and other fees into the loan, thus preserving cash. Not to mention, the cost of equipment, furniture and fixtures, parking lots, architectural fees, etc. can also be rolled into the loan.
3. Streamline or Increase Production
Whether your business is product or service based, having the necessary equipment is vital to maintaining smooth operations. However, replacing, upgrading or purchasing new equipment can put a serious pinch on cash flow. A 504 Loan offers business owners a more affordable way to get needed equipment without making a substantial dent in the bottom line.
504 Loans are perfect for the purchase and installation of new or used, fixed, long-life machinery and equipment, such as:
- X-Ray or Digital Imaging Machines
- Manufacturing Equipment
- Dry-Cleaning Equipment
- Commercial Printers
- Food Processing Machinery
- Highly Calibrated Machines
- Equipment that generates renewable energy
Machinery and equipment can be financed independent of real estate or in conjunction with a commercial real estate purchase. Loan terms of 10-, 20- or 25-years are available, which is determined by the useful life declaration provided by the manufacturer.
Practical Examples
Working capital was hard to come by…
A local retail provider was seeking working capital to purchase inventory and pay business expenses. Since the business owned its commercial real estate, the lender suggested a 504 Refinance Loan. The 504 allowed the borrower access to the equity they’d built in the real estate while re-amortizing with a low, long-term, fixed interest rate product. With a lower interest rate and better terms, the retailer lowered their monthly payment and accessed much needed working capital without taking on additional debt.
A balloon payment was looming…
A manufacturing company was four years into their mortgage payments and business was booming. However, with a five-year term loan, the balloon payment was quickly approaching. The lender stepped in and offered a recommendation for refinancing with the SBA 504 Program’s Refinance Loan…a long-term financing option with low fixed interest rates. This allowed the client to stabilize their expenses and spread their predictable payments out over 25 years.
A stalled expansion got back on track…
A wholesale bakery, nearing the end of a lease term, received news their business property was being sold and needed vacated. Facing an inevitable move, the business owner decided to make the most of the situation and began to seek a property that would not only house the business but would also allow for expanded production.
Nearby land was purchased, and construction of a larger building began. However, due to cost overruns, conventional financing could no longer allow for the completion of the construction…the borrower suddenly required a higher advance rate than the bank could offer. Exploring alternative options in hopes of getting the expansion back on track, the lender suggested the 504 Loan Program and they found it to be the perfect solution.
The participation of the 504 Loan Program allowed the bank to offer a 90% advance, which gave the business the financing they needed to pay contractors and finish the project. The new location offers ample space to produce, distribute and sell an expanded line of bakery items.
Growth Corp is a Non-Profit Organization Focused Exclusively on Small Businesses
Whether we are fulfilling our critical role as a provider of quality capital to America’s growing businesses, working shoulder-to-shoulder with clients to help them overcome challenges and capitalize on opportunities, or contributing to the communities in which we live and work, our impact has never been greater. We’d love to sit down with you and discuss your challenges and opportunities. Contact any member of our Lending Team to get started.