Federal Loan Program Helps Build a Retirement Account with Small Business Real Estate

Federal Loan Program Helps Build a Retirement Account with Small Business Real Estate

When you own instead of lease, you can build equity to create a valuable piece of commercial real estate. This owned property can then be rented out, or sold, along with business itself, and converted into retirement funds. However, small business owners often run into several barriers to real estate ownership when dealing with a conventional bank. These can include:

  • A 20‐30% conventional bank down payment requirement ties up too many funds
  • Conventional banks have shorter payment terms that cause payments to be too high
  • Conventional bank loans must be renewed every few years, creating unacceptable renewal risk and additional loan closing costs
  • Conventional banks can change ownership or management and decide small business loans are no longer favored
  • The new or emerging business does not yet have the track record to qualify for conventional bank financing

The solution is an SBA government‐guaranteed loan. When used to purchase an existing facility or construct a new one, SBA loans may provide a lower down payment, longer repayment terms, and easier qualifying criteria than conventional bank financing. In many cases, a small business borrower can even qualify for financing with as little as 10% down!

Furthermore, since an SBA real estate loan is a permanent 25-year mortgage, the borrower does not need to worry about renewing the loan every few years.

If the small business is constructing a new facility, the SBA loan can combine both interim (construction) and permanent financing into a single loan and leave the business owner with no payment obligations until construction is complete and the building is occupied.

Because it is technically a business loan instead of a real estate mortgage, the loan can also include funds for new business equipment or working capital. The SBA real estate loan is a very versatile vehicle to provide long‐term financing for 25 years, and loan amounts are available up to $5 million per small business borrower.

In summary, taking advantage of the favorable characteristics of an SBA to own instead of lease commercial real estate offers many benefits. Specifically, with an SBA government‐guaranteed loan, a small business owner can build enough equity over 25 years (or less) to have a substantial commercial real estate asset. When ready to retire, not only does the owner have a business to sell or liquidate, but also a nice piece of real estate to sell or hold on to for rental income.


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