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Only on Changes in SBA 504 Financing May Make Your Dream of Owning Your Spa a Reality

Barbara Morrison CEO and founder of TMC, a certified development company (CDC) based in San Francisco that has provided approximately $6 billion in financing for more than 3,700 businesses throughout California and Nevada, provides exclusive commentary to about how changes to the SBA 504 financing program open new doors for spa owners.

Could now be a good time to buy real estate for your business? That is the top-of-mind question for many spa owners. To the small business owners who have weathered the economic downturn and are feeling more confident about their financial stability, the commercial real estate market can be both tempting and unnerving.

Skin care facility owners are seeing a surplus of retail space at rock-bottom prices, but keep hearing doom-and-gloom reports that the economy is not growing as fast as economists had predicted. With lots of chatter about a second recession, many spa owners feel stuck, wondering if now is the right time to transition from leasing to owning their workspace.

A Small Business Administration (SBA) 504 loan may be the solution for some owners looking to purchase their facility. While the reality of putting 25% down in cash for a typical conventional mortgage loan with a bank may be too much for a cash-conscious renter, the SBA offers an option with below-market, fixed-interest rates via the SBA 504 loan program.

The SBA has streamlined its policies in recent years to make commercial real estate loans more accessible and feasible for businesses. This year, further improvements to the program have been made. The revamped SBA 504 loan program is the best-kept secret in the small business industry, and offers opportunities for spa owners under recent enhancements.

If you are leasing space for your spa, today’s low interest rates and the many benefits of the SBA 504 loan program make this an opportune time to look into buying your facility. By purchasing your facility rather than leasing it, you may be able to control its financial future, receive tax savings and enhance cash flow.

Spa and beauty services that have benefited from SBA financing include: Acqua Med Spa in San Rafael, CA; Casa de Maria Corporation in Van Nuys, CA; Marilyn Jaegar Skincare, Inc., in San Francisco, CA; Natural Nails in Los Gatos, CA; and Women’s Fitness Center in Fairfax, CA.

Working with CDCs

To obtain an SBA 504 loan, small business owners work with Certified Development Companies (CDCs) to process the paperwork. CDCs are private corporations that are certified and regulated by the SBA to make SBA 504 loans in specific geographic areas. Approximately 250 CDCs operate throughout the United States. The role of the CDC is to assist the small business in obtaining 504 financing in partnership with a private lender. (Editor's note: If you are interested in applying for a 504 loan, contact the CDC nearest you. You can get a listing from your local SBA District Office).

Benefits of SBA 504 loans include:

  • Up to 90% financing is available for the purchase, renovation and construction of owner-user commercial property; businesses are typically only required to provide 10% injection.
  • Larger loans for larger businesses; recent SBA 504 loan updates increased the maximum loan amount and expanded company size standards for eligibility. Most privately-held companies in the United States are now eligible.
  • Below-market, long-term interest rates; fixed for 20 years.
  • For the first time ever, small business owners are now able to use low-interest, government-backed SBA 504 loans to refinance existing underwater commercial mortgages.