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How to Purchase Affordable Office Space

Many business owners have dreams of owning their own office space, but what’s the best way to finance the investment?

As your company gains market share and industry momentum, you may eventually find that your current workspace is not sufficient to support your scaling business. When your business expansion requires additional space, you need to analyze the best scenario for your long-term needs. Should you purchase a commercial building, renovate an existing office space, or lease out a portion of your new office space? The biggest concern may be how will you best finance your company’s expansion?

Fortunately, there are a variety of lending programs available depending on your long-term business plans. The U.S. Small Business Administration (SBA) provides an excellent opportunity for owner-occupied commercial real estate (CRE) financing. SBA loans can allow for lower down payments, longer amortizations, more favorable terms, and projection-based financing.

If your business expansion plans include purchasing commercial real estate, consider SBA loans 504 and 7(a).


Why SBA Loans?

SBA loans hold several advantages for business owners.


51% Owner Occupancy:

The SBA is interested in guaranteeing loans for small business owners who will operate within the property. The SBA defines owner-occupied as 51 percent occupancy of square footage by the operating company for existing structures or 60 percent of occupancy for new construction.

49% Lease Option:

If the SBA loan involves acquisition, renovation, or reconstruction of an existing building, you as the borrower may lease up to 49% of the project property long term. This could provide more income and cash flow to reinvest into the business.

Low Down Payment:

The down payment and term length can be a strategic financing option for businesses that want to put down less money and have a low monthly payment. With an SBA 504 loan, the business owner normally pays 10% down, so you can borrow up to 90% of the total financing needs. Under certain conditions the borrower may have to put down a higher percentage. This way you can keep more cash for your business. A lower monthly payment can help fuel cash flow management, minimize the equity injection, and avoid refinancing.

Longer Repayment:

SBA repayment periods are longer than conventional bank loans including 25, 20 or 10 years fully amortized for real estate loans and ten years fully amortized for equipment loans. Your monthly loan payment is more affordable, improving your business’ cash flow.

How Does the Financing Work?

Your bank will provide a first trust deed loan for at least 50% of the total project cost. The Certified Development Company (CDC) provides SBA-guaranteed 504 loan for up to 40% of the total project cost, or a maximum of $5 million ($5.5 million for manufacturing businesses and qualifying “green” buildings). As the business owner, you will contribute a down payment of at least 10%.

The SBA 7(a) program is another option for business owners which allows access to working capital, funds to purchase furniture and fixtures or to make improvements, and/or acquire an existing business. It is more focused on start-up costs, purchasing new land, repairing existing capital and purchasing equipment, machinery, furniture, fixtures, supplies, or material.

You may be asking what happens if you still need a loan but do not expect to occupy more than half of the available square footage of the commercial property? Savoy Bank can help you explore our conventional loans that allow occupancy of the borrower’s business to be less than 51%. We have the experience to help you navigate and streamline the lending process to find the best path to success. Since all loan decisions are made by our lending team, we can turn around loans faster.

Savoy Bank is dedicated to sharing resources and information to help your small business grow and stay resilient. Let’s connect to find the best financial products that fit your current and future needs.


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