If you have a profitable business of at least two years and want to buy commercial real estate for your business, the Small Business Association (SBA) has a couple of programs designed to help.
First of all, it’s common to assume that businesses only rent office space, which is generally the case in expensive California, however, there are reasons that owning may be better. Investing in your own real estate puts you in control of your location and longevity, rather than waiting for never-ending rent increases that can push you out of the area. Like residential real estate, you will watch your equity grow, and unlike residential real estate, you can rent the location to your own business creating a tax-wise strategy.*
The SBA offers two programs designed for the mature business interested in owning commercial real estate or add infrastructure, like hiring staff, purchasing equipment, computers, etc. Each program is only appropriate depending on your situation and what you're trying to do.
504 loan - For the purpose of buying commercial real estate of $125,000-$20m+, this loan reduces the down payment requirement from the 20%+ conventional loan standard to only 10%. The loan is a 20-year term with a fixed interest rate.
7(a) loan - This is a general-purpose loan that can be used for working capital, real estate, or capital improvements. It has the same 10% down payment requirement but you can put in more and has varying loan terms.
An SBA loan officer will connect the business owner with the right lender, possibly with your existing banking relationship and help structure the loan.
At Eureka Wealth Management, I help small business owners strategize on real estate and capital improvements by reviewing various federal programs available to them. I also review your balance sheet, cash flow, and advise on potential insurances that can reduce business risk. Call for a free, initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.
*Consult a tax advisor for tax questions.