Could now be a good time to buy real estate for your business? That is the top-of-mind question for many business owners. To 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.
Spa 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 skin care facility owners feel stuck, wondering if now is the right time to transition from leasing to owning their workspace.
The Small Business Administration (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 one of the best-kept secrets in the small-business industry, and offers opportunities for spa owners under recent enhancements.
An affordable solution?
An SBA 504 loan may be the solution for owners looking to purchase their skin care facility. Although the reality of putting 25% down in cash for a 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.
With as little as 10% down, the SBA 504 loan provides appealing financing that allows skin care facilities to conserve working capital to expand their businesses. Small-business owners also benefit from a 20-year loan with no balloon payments and a fixed, below-market interest rate for the entire term of the loan. The rules remain the same from state to state, since it is a federal program: 50% from the bank, 40% from a certified development company (CDC), and 10% from the borrower = 90% financing.
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. Small businesses that lived to endure the sizable lease cost increases during the past few years realize that property ownership may be less stressful and potentially more cost-effective than leasing. By purchasing your facility rather than leasing it, you may be better able to control its financial future, receive tax savings and enhance cash flow.
“We were previously renting our space with limited resources available. Looking to expand our spa and obtain some sort of financial security against rising rent costs, we enlisted a CDC to assist us with getting an SBA 504 loan,” explains Jacinta Gibbons, owner of San Francisco’s Cinta Aveda Institute. “Now, we are reaping the long-term benefits of owning our spa while implementing a business plan that would not have been possible without this major investment.”
The restrictions are that the loan proceeds can only be used to purchase, renovate or construct commercial real estate properties, or for the acquisition of equipment that has a life expectancy of 10 years or more.
Working with CDCs
To obtain an SBA 504 loan, small-business owners work with 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 small businesses in obtaining 504 financing in partnership with a private lender. For more information on these types of loans, log on to www.sba.gov.
Barbara Morrison is the CEO and founder of TMC, a certified development company (CDC) based in San Francisco. TMC has provided approximately $6 billion in financing for more than 3,700 businesses throughout California and Nevada over the past 29 years.