Have you been thinking about buying commercial real estate? Do you have your eye on the perfect building for your business? Many would-be buyers look forward to the stability and freedom owning their own property will bring them, but they aren’t sure if they should take action now.
Before 2022, interest rates were at a historic run of all-time lows. And for a while, it seemed like it might go on for years to come. But Federal Reserve policies have changed as the focus shifts from a pandemic response to reining in inflation. That has some repercussions for your business.
Over the last year, SBA 504 loan interest rates have risen from 2.97 percent in September 2021 to 6.52 percent in November 2022. Naturally, this has many business owners rethinking their plans – but before you put them on the shelf, it’s important to weigh the costs of inaction.
If you own a business and need financing, but you’re on the fence about current rates, it pays to get the whole story. It may seem counterintuitive, but there are still plenty of good reasons to go forward with your financing now. Here are some of the biggest ones:
1. Rates Are Still Relatively Low.
You might feel a lot better about rates rising over the last year when you consider the historical trends. As recently as 2006, SBA 504 loan interest rates topped 7 percent, far higher than today’s 6.52 percent. Throughout 2004-2014, rates were often at or above today’s rates.
Sub-3 percent interest rates are an anomaly caused by a once-in-a-lifetime set of circumstances. Today’s rates are closer to what would be considered normal, but they are still favorable in comparison to past trends.
2. Rates May Rise Higher – Especially with Conventional Financing.
In the not-too-distant future, small business owners who choose not to seek an SBA 504 loan at today’s rates may wish they had. The Fed has been aggressive in raising interest rates so far and has signaled it will use these rates as its main tool in the fight against inflation.
With inflation still at 8.3 percent in August of 2022, it’s shaping up to be a long battle.
3. Your Business Might Not Be Able to Wait.
Cash flow is the lifeblood of any business. When business revenue and savings aren’t enough, you need financing. The lower the rates you get, the more money you can keep “in play” and put to work for you – and that makes waiting for rates to drop again a very risky proposition.
Simply put, there’s no guarantee that rates will go down – in a year, three years, or five years. No one likes to think about “what might have been” if their timing had been different, but when it means the difference between survival and insolvency, it’s even more important to take the plunge.
4. Interest Rate Figures Don’t Tell the Whole Story – You Have Options.
An SBA 504 loan is lauded by business owners from coast to coast for more than just its below-market rates. It can be used for commercial real estate, purchasing equipment, or making eco-friendly improvements to a property. It offers attractive down payments as low as 10 percent, too. For businesses that need a “special use” property such as a vineyard, the SBA 504 loan is often simpler than a conventional loan and more attractive.
That said, there are many possibilities to explore. A loan specialist can help you consider all of your loan options. Small business credit cards can also be helpful, especially when they offer valuable incentives.
5. Refinancing Is Usually an Option.
Even though today’s trends are clear, nobody can predict the future. It’s true that interest rates might go down in years to come. If you already have a loan, does that mean you’re out of luck? No, not at all!
If you choose an SBA 504 loan, you’ll have access to the SBA 504 Refinance Program whenever it makes sense for you. Refinancing helps make borrowing more affordable. The SBA 504 Refinance Program offers terms up to 25 years, below-market fixed interest rates, and reduced monthly payments. It is also a great way to access cash currently trapped in real estate.
Don’t “Wait and See” When It Comes to Buying Your Building.
If you aspire to own your property, don’t leave it up to chance or the whims of the Fed. You lose nothing by getting more information about the SBA 504 loan program – and you might learn exactly what you needed to know to take the best next step for your business.
TMC Financing is a Certified Development Company licensed to operate in Arizona, California, Nevada, and Oregon. As a nonprofit organization trained to help business owners through the SBA 504 loan process, we are here to answer all of your questions.
Contact us to learn more or get started.