How 504 SBA Loans Can Help You Avoid Balloon Payments with Fixed Rates

Have you noticed that interest rates are on the rise? The trend is expected to continue at least through 2019. For this reason, it is more important than ever to look for fixed rates that are below market and to understand how 504 SBA loans can help you do it.

Why Business Owners Are Worried by Higher Rates

Higher rates can cause worry for business owners for several reasons, but there is one major one on many people’s minds. Many small business owners lease their properties rather than buy them, which means they can expect rent spikes as interest rates climb. For some, this means a property becoming too expensive for them to continue to use and sometimes, the closing of the company. The obvious solution is to purchase property instead, and it’s easier to do than some business owners realize.

Using a 504 Loan To Purchase Property

Although there are many types of loans available for business owners, many of them have variable interest rates just like leases do. However, 504 SBA loans provide the borrower with a fixed interest rate for 25 years and does not include a large payment (known as a balloon payment) at the end of the contract. The fixed rate makes it easier for the business owner to know exactly what he must pay each month and for how long, without fear that the payment will change and become too expensive. In addition, 504 loans require as little as 10 percent down, making it much easier for new entrepreneurs to secure the funding they need.

Options for Using the Financing

504 loans are versatile and can be used in several ways. Of course, if possible, the capital should be used to purchase property and avoid ballooning lease payments, but you can also choose to construct your own building from the ground up. Other options include renovating current buildings, purchasing equipment that will be in operation for at least a decade and refinancing conventional debt for lower, easier-to-make payments.

How To Apply

The Small Business Administration provides funding to traditional lenders for 504 loans, which means you will need to consider your specific lender’s requirements. However, in most cases, you can become pre-qualified with only three documents: a personal financial statement, personal or business tax returns for the past three years and a copy of your interim financials.

If you think 504 SBA loans may be right or you, now is the time to look into them. The sooner you decide to apply, the sooner you can stop worrying about rising interest rates forcing you to pay more than you can afford on your leasing contracts.


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