Morgan Hill’s NewPath Landscape Services recently used long-term loans from the U.S. Small Business Administration that helped the company expand its assets and cut down on unpredictable recurring costs.
NewPath co-owners Filiberto Fonseca and Gino Borello acquired the approximately $1.6 million worth of loans through the SBA 504 program, which provides financing for “major fixed assets that promote business growth and job creation,” reads the SBA website.
In NewPath’s case, Fonseca and Borello used the SBA 504 loans to finance two projects: the purchase of eight acres of vacant land and the acquisition of a 4,608-square-foot building in Morgan Hill, according to a press release from TMC Financing, which processed the loan for NewPath.
The land purchase required a 10 percent down payment. In making these property purchases with the use of multiple SBA loans, NewPath was able to eliminate its use of outsourced storage space. The loans also helped the company “escape unpredictable lease rates,” says the press release.
SBA 504 loans are one of many tools available to small businesses at a time when industries face daunting financial challenges. Oakland-based TMC Financing—a Community Development Company that is certified to process SBA 504 loans—reports that since the Covid-19 pandemic started and related restrictions were implemented, small businesses nationwide have made increasing use of 504 loans to help position themselves for full reopening in the near future and recovery.
“The SBA 504 program offers a unique path forward for small businesses looking to mitigate some of the impact of uncertainty, proactively shore up bottom lines and navigate their way back,” said TMC Financing President Barbara Morrison. “The SBA 504 Loan Program—best known for attractive financing to purchase commercial property for the business to occupy—also provides an opportunity to refinance existing real estate debt at historically low interest rates and to obtain cash trapped in the property.”
According to the SBA website, the SBA 504 program offers fixed-rate, long-term financing up to $5 million. Loans can be used for the purchase of existing buildings or land, construction of new facilities and financing for machinery and equipment. SBA 504 loans can also be used for the improvement or modernization of existing property.
From March 1 to Nov. 30, 2020, the SBA 504 program approved 1,011 loans in California, adding up to more than $1.1 billion in financing for small businesses, according to data provided by TMC Financing.
In 2019, SBA 504 activity accounted for 1,279 loans worth about $1.28 billion. These loans supported an estimated 11,900 jobs in California, according to TMC Financing.
Small businesses can use SBA 504 loans to refinance up to 85 percent of a property’s appraised value and obtain up to 20 percent of the property’s value in cash, Morrison added. “This cash can be used for qualified business expenses, including salaries, rent, utilities and inventory,” she said.
Business owners who do not need extra cash can still use the SBA 504 program to take advantage of historically low interest rates, the press release adds.
“The SBA 504 rate is fixed and fully amortized over 25 years. For a straight refinance project, with no cash out, the 504 loan can refinance up to 90 percent of the property’s appraised value. Additionally, the refinance project can consolidate multiple loans as long as they were originally used to purchase the property,” says the press release from TMC Financing. “After refinancing with an SBA 504 loan, business owners can enjoy fixed occupancy—no more escalating lease costs. The repayment period of up to 25 years, with no balloon payments, and fixed monthly payments provides peace of mind from having stable and predictable operating expenses.”
For more information about the SBA 504 program and other financial resources for small businesses, visit sba.gov.