Protect Yourself from Interest Rates Hikes with SBA 504 Loan

Rising interest rates are a bit of a double-edged sword. For individuals, interest rate hikes signal a strong and growing economy and the possibility of pay raises and job opportunities. For small businesses, many still paying off SBA loans, interest rates signal a rise in monthly rental fees.


Lease rate increases can be a formidable hurdle for many businesses, especially those that work lean and efficient. Depending on how much the lease payment rises, business owners could find themselves struggling to balance the budget. Lease increases of double or triple the current rate are not unheard of.


One way small businesses can battle this possibility is to move from renting property to owning property. Many experts suggest this strategy since it sets up the business for long-term growth by eliminating the uncertainty of lease increases. A fixed-rate mortgage on a building or other property is a fixed payment for the life of the loan. With that, you can develop a better budget, invest in the business by investing in the property, and not have to worry if you will need to move because the rent is too high.


Why an SBA 504 Loan Might be Best


Many small businesses opt for an SBA 504 from the U.S. Small Business Administration as a lending vehicle when purchasing property. The loan often provides borrowers with a 25-year fixed rate below market. Since it is amortized, as well, you avoid a larger, final “balloon” payment.


Businesses worried about not having the working capital to secure a 504 loan will be happy to know it requires a low down payment. Often, you can secure the loan with as little as 10 percent down at signing.


It is also ideal for more than city-based businesses. Entrepreneurs can use it to purchase land or for new construction and renovation. Borrowers can even use the funds to consolidate debt or buy equipment. The equipment must have a service life of 10 years or more, however.


SBA 504 Loan Requirements


To see how much you might be able to borrow, gather three years of personal and business tax returns, interim financials and a personal financial statement. Documents in these three categories are all you need to see how you qualify. Present them to a qualified lender of SBA loans, who will also answer any questions you have, to see what you could borrow.


Remember, too, that regardless of your financial situation, there are a several SBA loan options to choose from. Work with a small business advisor to see what would work best for you.


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