It’s a scenario we see all of the time when it comes to business facilities and office space in Chester County’s booming real estate market: A business owner has been leasing a building for years, and now the property owner wants to sell it. Suddenly there’s a decision to make. Should you buy the building or move? Before the words “I can’t afford it” run through your mind, consider this:
If you’re a business owner who has made documented improvements to a property over the years, you may be able to count it toward a down payment on your building purchase.
This was exactly the situation faced by a Chester County manufacturer who had been paying rent at his location for years, and the building fit his needs perfectly thanks to the $210,000 in improvements he’d made over time. Instead of having to find additional cash to use as down payment on a loan, the $210K in eligible documented improvement costs counted as his equity with no additional cash out of pocket. He ended up with an SBA 504 loan through the U.S. Small Business Administration at a below-market, fixed interest rate.
How does it work? The SBA 504 is a government loan program that’s designed to give small businesses an additional way of attaining financing, while stimulating job creation and business growth in the community. The loans are made available through community-based partners called Certified Development Companies, and your local one is located at the Chester County Economic Development Company in Exton, called Seedcopa. For an SBA 504 loan, the SBA provides up to 40% of a project’s total costs, a lender provides 50%, and the borrower contributes as little as 10%. (A conventional loan often requires 20-25% down payment.) In the case of the manufacturer, his 10% was the $210,000 in improvement costs on a $2,100,000 project.
In many cases, your new monthly mortgage can be lower than your current rent payment. You can also close this type of straight purchase loan fairly quickly, and lock in your long-term fixed rate.