By Manex Guest Blogger Bryce Fennell, CPA

Managing cash flow in a growing manufacturing business can be challenging. Overhead expenses have the potential to be exceptionally high, customers can take a long time to settle their accounts, and the cost of labor, supplies and materials can rise rapidly without warning.

There are a variety of small business loan options manufacturers can utilize to remedy potential cash flow issues, but the Small Business Administration’s (SBA) 504 Loan Program has benefits that most other loan options do not.

The SBA 504 loan is an accessible and affordable program specifically designed to help businesses finance commercial real estate and other fixed assets with long-term, below-market, fixed interest rates. By financing a commercial real-estate and or equipment with an SBA 504 loan, manufacturers can stabilize their occupancy costs and manage their expenses more effectively with only a 10% down payment.

Key advantages of securing an SBA 504 loan to purchase a building for your manufacturing business:

  • Low down payment – Manufacturers can buy a facility with as little as 10 percent down, allowing businesses to conserve more cash.
  • Below market, FIXED interest rate – The SBA 504 loan allows business owners to lock in a below-market rate.
  • Long repayment term – The 504 loan is fully amortized for 25 years, making loan payments more affordable and improving monthly cash flow, with no balloon payment.
  • No additional collateral is required – The only collateral required is the subject property.
  • Most businesses are eligible – Most businesses are eligible for the 504 Program, but the manufacturing industry has the most lenient qualification standards. The business must be for-profit. If purchasing your building, must occupy at least 51 percent of the building. If you are financing the construction of a new building, you must occupy at least 60 percent of the building.
  • Versatility – While the SBA 504 Loan is most commonly used to acquire real estate, it can also be used to:
    • Construct new facilities or renovate existing facilities
    • Purchase equipment with a service life of 10 years or more. No appraisals are necessary, and taxes, shipping and installation fees can be included
    • Refinance existing commercial real estate debt

The 504 Program & Support from a Certified Development Company

The SBA 504 loan is administered through nonprofit mission-based lenders, also known as Certified Development Companies (CDCs), such as TMC Financing.  A CDC’s mission is to help match a small business with a loan product that will best support its growth. CDCs guide business owners through the entire loan process and act as the owner’s advocate throughout the life of the loan.

The mission-driven lending business aligns well with Manex’s nonprofit manufacturing mission and we are proud to make our California manufacturers aware of this program.

About the Author

Bryce Fennell is a CPA with TMC Financing is the number 1 provider of SBA 504 commercial real estate loans in the nation, helping small businesses expand throughout California and Nevada.