Should I get more than one SBA 504 loan? Why these business owners did
March 28, 2021
How did a local laundromat become the go-to linens servicer for several major hotel brands spanning Lake Tahoe to San Francisco?
Through the power of multiple SBA 504 loans. This fixed rate, low down payment financing played a crucial role in propelling Sacramento Laundry from mom-and-pop status to now an employer of 400-plus workers operating out of a 60,000-square-foot building.
Many small business borrowers may wonder if it’s possible to get more than one SBA 504 loan. The short answer is yes. While often viewed as a once-and-done funding tool, SBA 504 financing can actually be leveraged several times over, in a responsible, financially savvy way.
FE Small Business Finance has been a trusted authority in the SBA 504 space since the program’s inception in 1986. Since then, we’ve helped promising businesses like Sacramento Laundry maximize the benefits of several SBA 504 loans to fund their continued growth while keeping operational costs stable and manageable.
“Sacramento Laundry is now the No. 1 choice for linens service among major hotel brands in Northern California,” Ed Ryan, an experienced SBA 504 loan officer at FE Small Business Finance. “And they’ve more than tripled their business since 2012.”
What is an SBA 504 loan?
Small business owners can use SBA 504 loans to purchase buildings, land, or major assets such as a cutting machines and construction equipment.
Due to its novel structure, this type of business loan only requires small business owners to put down 10 percent. To put this into perspective, a conventional commercial loan typically requires a down payment of up to 30 percent.
SBA 504 financing requires a lower down payment because it’s backed by the federal government, specifically the U.S. Small Business Administration. This allows community lenders like us (called FEs) to get more financing to a broader pool of small business owners.
With the SBA’s guarantee, we can serve many of the businesses that conventional lenders consider a bit more risky – whether it’s due to a blemish in the borrower’s credit or the fact the applicant is in the early stages of the company’s business development. By doing so, we help companies in underserved areas and help them create much-needed jobs.
These loans are especially attractive in rising-rate environments. With SBA 504 loans, you can enjoy below-market interest rates. (For more: How to get a sub-5% building loan now) And you can rest assured your rate will be fixed throughout the life of your loan, which means your payment amounts stay the same.
Can I get more than one SBA 504 loan?
Small business borrowers can certainly get more than one SBA 504 loan.
Julia and Keith Pooler, owners of Sacramento Laundry, are a classic example of a repeat SBA borrower. They’ve gotten five SBA 504 loans through FE senior loan officer Ed Ryan since 2012 to finance a building purchase and several pieces of major equipment. Now they’re working on No. 6, also with Ryan.
When he met the Poolers in 2012, they were operating an up-and-coming hotel linens service that employed 40 people in a leased 6,000-square-foot facility.
They’ve since increased hiring by tenfold and moved into their own 60,000-square-foot facility. With the funding for a larger building and bigger, better equipment, the Poolers were able to increase their capacity manifold to serve clients they were initially turning away, Ryan said.
In fact, thanks to the financing of several tunnel washers, they are now able to run laundry services 24 hours a day, seven days a week to serve about 30 major hotels in Northern California.
The SBA 504 financing also helped Sacramento Laundry gain another impressive distinction. They’re now one of the “greenest” laundry services in their region. Their tunnel washers require 75% less water and fewer chemicals compared to traditional washing machines.
Julia and Keith Pooler, owners of Sacramento Laundry and FE Small Business Finance borrowers, were interviewed by our content partner, CNote.
What are the benefits of several SBA 504 loans?
More stability. One part of running a successful business is to keep overhead, or day-to-day expenses, as stable as possible. Since SBA 504 loans offer fixed rates, you’ll know your exact monthly payment every month for the life of the loan. This means predictability in your business operations, allowing you to forecast and plan more accurately as a business owner.
Long-term savings. This type of loan can also translate to savings. If you’re using an SBA 504 loan to finance a commercial building, you may find that your monthly mortgage payment can actually be lower than what you’re currently paying in rent. What’s more, you won’t be at the mercy of a landlord, who can raise your rent, or worse, decide not to renew your lease.
Related: How a family-run gas station broke new ground with SBA 504 loan
“With a 504 loan, you have a better idea of your overhead for the long-term and you get to enjoy beneficial interest rates, too,” said Ryan, who has more than three decades of commercial lending experience.
Higher chances of approval. Small business loan applicants will often find that banks are risk-averse and base their funding decision largely on a business’ revenues. The SBA 504 program, on the other hand, values more than just revenues and other hard-and-fast numbers. By design, this loan alternative also focuses on the business owner’s ability to create jobs and improve its local community, factors that improve the applicant’s chances of funding.
Leveraging multiple SBA 504 loans for faster growth
Many businesses use SBA 504 loans as a smart financial tool. One loan can help build your credit and open the doors to borrowing again down the line.
As your company and client demand grow, you may need more affordable financing to sustain that momentum.. By building up your borrowing power with one SBA 504 loan and being in good standing, you can demonstrate you are a strong candidate for another one.
Related: Get up to speed on 2021 SBA 504 regulations
What’s more, since the down payment for an SBA 504 loan is only 10%, the cash you’d free up can be used more effectively as an investment in hiring more workers, and purchasing more inventory and equipment to further grow your business, said Mike Owen, chief credit officer at FE Small Business Finance and an SBA 504 expert. By freeing up that otherwise tied-up cash through an SBA 504 loan, you can use your own funds, instead of waiting for another loan, to finance additional inventory and equipment.
With a conventional bank loan, it would take longer to accumulate the required 20%-30% down payment, which could slow down your expansion plans. Plus, that amount would be tied up in your loan instead of being invested back in your business. That’s why Sacramento Laundry and many other borrower clients decide time and time again to go the SBA 504 route instead of traditional.
Deciding between an SBA 504 vs SBA 7a loan
Small business owners looking to buy a building or major equipment can also use SBA 7a financing. But it’s generally a better idea to use an SBA 504 loan instead for those purposes. Why?
- Fixed rate: All SBA 504 loans come with fixed rates while 7a loans predominantly offer variable rates. This again affects your company’s financial stability. With fixed rates, your monthly payment is the same each time.
- Higher debt limits. The maximum loan size for an SBA 504 loan is $20 million. That loan limit for an SBA 7a loan a quarter of that, at $5 million. Had the Poolers gone with an SBA 7a loan instead, they wouldn’t have been able to return to FE so many times for SBA financing, given they’d have hit the borrowing limit much sooner.
- Lower fees. The SBA 7a option is pricier as it relates to the SBA guarantee and SBA fees compared to SBA 504 loans. (For more: SBA 504 vs 7a comparison)
“With the FE’s help, we were able to build the infrastructure and buy the equipment for probably one of the largest commercial laundries in Northern California,” said Keith Pooler. “We produce more linen than anybody else by far and what that requires is a lot of intensive capital investment.”
“ FE was great, in particular Ed Ryan, who was a wealth of information,” he added.
Other borrowers who’ve gotten multiple SBA 504 loans
Indio Products in Commerce, Calif.: Billed as the world’s “most complete” maker and distributor of religious and spiritual products. This thriving company received two SBA 504 loans through FE to buy two building, one in Commerce and the other in Vernon, Calif., both industrial Los Angeles-area towns. They returned for a third SBA 504 loan for an affiliate entity called Nu-Botanics Candle Corp. The loans were made possible by FE’s Team LA, Armen Madatyan and Dean Aloe.
Greulich’s Automotive Repair in the metro Phoenix area: The family-run chain of automotive repair shops has an SBA 504 loan with FE loan officer Chris Bane and has two more SBA 504 loans in the pipeline with him. With the first SBA 504 loan, they plan to expand to their 16th location in the metro Phoenix area. They expect to hire 10 more people to staff the new site.
For more: How SBA 504 loans fueled Sacramento Laundry’s success story
Do you aspire to be part of the multiple SBA 504 loans club? As a leading SBA 504 real estate lender, we can guide you through this important financial decision, step by step and in easy-to-understand terms. Reach out to our team of SBA 504 loan officers to talk next steps.
Tell our loan experts about your business, and they’ll work to match you with a financing plan that best suits you. Let’s talk! Reach us at email@example.com or (619) 243-8667.
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