By Alexander Cohen, CEO of Liberty SBF
While the U.S. economy is beginning to recover, many are worried that job growth – a necessary factor in getting many Americans back on their feet – has stalled.For small business owners, there is a little-known government program that can help create jobs to stimulate the economy, at the same time bolstering entrepreneurial dreams: the U.S. Small Business Administration (SBA) 504 loan.
Quite simply, an SBA 504 loan enables small business owners to purchase their own commercial real estate, including office buildings and warehouses. The loan is especially attractive given the challenging credit environment facing today’s entrepreneurs, many of whom cannot secure traditional bank financing.
An SBA 504 loan is a partnership between something known as a Certified Development Company (CDC) – an economic development organization certified by the SBA to grant loans – the SBA itself and a mortgage lender. The CDC provides up to 40 percent of the financing for an SBA 504 loan, the mortgage lender 50 percent and the small business owner as little as 10 percent down.One of the loan’s biggest benefits to small business owners is access to capital at low, fixed interest rates – the kind typically only available to large corporations.
The SBA 504 loan champions the formula: Small Business + Commercial Real Estate = Job Growth.Business owners who secure an SBA 504 loan realize numerous tax benefits, not the least of which is appreciation on their real estate asset/s. So, what does a small business have to do in return?
The SBA 504 loan requires a small business to create or retain one job for every $65,000 guaranteed by the SBA 504 loan; alternatively, small manufacturers must create or retain one job for every $100,000 guaranteed.Borrowers must include projections for meeting these requirements – which are not part of the bank loan process – in their loan applications.
A 2007 economic impact study, funded by the National Association of Development Companies, the CDC trade association, reported that of 15,000 businesses that received SBA 504 loans during a two-year study period between 2003 and 2005, the program supported a net growth of 54,000 jobs and $4.6 billion in added labor income.Additionally, approximately two-thirds of all SBA 504 borrowers reported job growth within two years of receiving the loan.Small businesses with job growth – not including start-ups – averaged nearly 12 new jobs per business and about $41,600 in SBA 504 loan dollars per new job.
For small businesses looking to gain ownership of their real estate assets, there is no better program than the SBA 504. To learn more, please visit www.sba.gov.
About The Author:
Alexander Cohen is Chief Executive Officer at Liberty Small Business Funding (Liberty SBF), a commercial real estate company that specializes in SBA loans for small business owners, and has extensive experience lending through the SBA 504 program.