Purchasing Commercial Real Estate Using SBA 504 Financing

Feb 10, 2015 3:51:45 PM

Nancy Lemas, now a seasoned commercial real estate agent, went through multiple market downturns before she decided that she had had enough. Her “aha” moment came when she realized that you can have all the listings in the world, but if banks aren’t lending you’re still going to fail!

For this reason, Lemas decided to specialize in the SBA 504 financing program, a loan guarantee by the federal government to help small businesses purchase tangible property. She leveraged the government-backed program to sell commercial buildings to companies that were leasing space and missing out on the opportunity to build equity.

An SBA 504 is especially attractive to companies that are looking for a source of income by renting out unused building space to tenants. In many cases, this rental income can subsidize expenses or even become an additional revenue generator. This arrangement also provides a growing company with a long-term plan for their business. As they expand, they can simply occupy the rest of their space.

Additional benefits to owning a building:

  • Tax benefits
  • Ability to control operating costs
  • Effective occupancy costs
  • Fixed low interest for 20 years
  • Potential appreciation

SBA 504 requirements for eligibility:

  • 51% owner occupied
  • For profit
  • Domestic
  • Net worth less than $15m
  • Net income less than $5m
  • No spec or investment real estate
  • Fixed assets – real estate or requirement

Two simple ways to begin positioning yourself as a SBA 504 resource:

  1. When a business closes in your community be proactive and contact the building owner.
  2. Offer your expertise to commercial banks by presenting during educational programs. If you can educate and then secure small business clients for yourself and the bank you have created a win-win situation.