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SBA 504 Expert Explains Why Now is the Best Time to Buy Your Commercial Real Estate.
Today I’m going to talk to you about the
why now is the best time in a long time to buy your commercial real estate.
If you’re a small business owner that pays
attention to the news, you probably get the idea that now is NOT a good time to buy commercial
property for your business, and with very good reason. There are endless reports of
unemployment and corporate bankruptcies, not to mention confusion in Washington about how
to actually fix our economy. But if you dig a little deeper, you’ll find that there
is a silver lining to the current economic situation, and now might just be the right
time to buy after all.
So let’s take a look at the facts, starting with the bad news out there:
We’ve been told that the “Great Recession”
has been over for a while, but it doesn’t seem that way. The economy continues to limp
along and you’ve heard that most commercial lenders are still hesitant to make new loans,
even for no-brainer deals. Even if you were approved by a lender, you’re not sure you
could part with the cash for a 20 to 30% down payment, which is what most lenders are now
requiring. On top of that, there are costs for build-out, fixtures, furniture, equipment
and closing costs. So given this outlook, you’d come to the conclusion that buying
commercial property is out of the question. And you wouldn’t be alone.
A study just released by one of the nation’s
leading SBA volume lenders, found that 36% of small business owners listed current market
and economic conditions as the biggest barriers to securing a loan to buy commercial real
estate.
But as I said before, there’s a silver lining here. Because of the economic uncertainty
we face, property values and prices are low. Most people have been frightened by all the
negative news, and are hunkering down. Low demand means it’s a buyers’ market, and
there are some great deals out there right now.
Interest rates are also at historically low
levels, which means monthly mortgage payments will be lower. There’s a good chance you
can now afford a bigger, better building than you could just a few years ago, when the economy
was booming.
These are all very strong arguments that now IS a good time to buy commercial property,
but there’s more. The right financing tool can make it even easier to afford your commercial
property.
Regardless of what you’ve heard or what you think you know about the SBA, its 504
loan program is one of the best options for owners of small and mid-sized businesses who
want to own their commercial property. It takes all the positive things I just mentioned
and multiplies them. For example, the down payment requirement for a 504 loan is as little
as 10%. That’s two to three times less than what ordinary financing requires. In the
same study I referred to earlier, nearly one in five business owners indicated that they
could not afford the down payment to secure a traditional conventional bank loan to acquire
their commercial real estate.
By the way, traditionally out-of-pockets expenses (renovations/build-out, fixtures, furniture,
equipment, and soft and closing costs) can all be included in and financed as part of
an SBA 504 loan. Put all that together with decreased purchase prices, and your equity
injection becomes much more manageable.
You can also get long-term fixed interest rates and longer amortizations with a 504
loan, which keep your monthly payments very low. Again, interest rates are at all-time
lows and if you can lock those in for 20+ years (like you can with a 504 loan) you ought
to jump at that opportunity.
There are arguments both for and against purchasing commercial property right now, and only you
can make the right decision for your business. You should arm yourself with as much knowledge
as possible, and find a lender and a commercial real estate broker you can trust. Your business
and situation are unique; you should expect nothing less from your lender and your broker.
Best of luck on taking advantage of this great
opportunity.