The COVID-19 pandemic and the resulting mitigation policies are impacting all Americans, but small business owners continue to face unprecedented challenges and uncertainty.

With the timing and nature of the economic recovery unknown, small businesses have taken advantage of the US Small Business Administration for resources. SomerCor, an SBA Certified Small Business Lender, is proud to play a role in the agency’s role in providing access to capital to entrepreneurs during this crisis through the SBA 504 program.

The 504 Program is a public-private lending solution that allows small business owners to purchase, expand, or refinance major fixed assets – commercial real estate, equipment and machinery.

Here are three points highlighting how the 504 is supporting improved cash flow and liquidity for small businesses in these economically difficult times.

Low fixed interest rates

The SBA 504 program has several borrower-friendly elements, including lower down payment, predictable loan repayments, and fixed terms of 20 or 25 years. But perhaps the most attractive feature of the program is the below market interest rate. In November 2021, the interest rate on the 25-year SBA 504 loan was 2.92% compared to bank commercial real estate lending rates of 3.25% to 4.75%.

Lower interest rates mean lower, more affordable monthly mortgage payments, freeing up capital to improve cash flow and reinvest in the business.

Additionally, in times of high inflation, business owners may benefit from the higher advance rate provided by the SBA 504 program, as future dollars are expected to have purchasing power significantly less than that of current dollars. Likewise, since the 504 loan interest rate is fixed for 20 or 25 years, this mitigates the risk of rate hikes and provides predictability in the management of real estate costs.

Stability and liquidity

The only certainty is uncertainty. As we continue to navigate the pandemic and a unique economic recovery, the need for liquidity is paramount. Businesses need additional working capital to purchase additional inventory, absorb short-term losses, increase security measures, or possibly invest in a potential acquisition opportunity. The 504 program typically only requires 10% equity, allowing the business owner to keep more cash for their short-term needs.

In addition to the borrower-friendly terms of the 504 loan, refinancing clients can withdraw money for qualifying expenses. The cash receipt is up to 20% of the appraised value of the property. Expenses eligible for withdrawal funds include non-homeowner salaries, rent, utilities, inventory, and a business line of credit or business credit card debt. Refi is a great option for existing businesses to save on monthly payments and improve cash flow to solve more immediate problems.

Proven performance

The 504 program has always been an important economic stimulus tool. Since the start of the pandemic, the 504 program has seen unprecedented demand, leading to the largest annual loan volume in the program’s history at $ 8.2 billion in fiscal year 2021. This represents an increase 41% of loan volume over the previous year, as more lenders and borrowers take advantage of the 504 program.

Now is the time to explore how the SBA 504 program can best meet the financing needs of your business, through current challenges and beyond.

• Brian Comiskey, CPA, is Executive Vice President and Chief Credit Officer at SomerCor.