The pandemic has had a detrimental effect on Nevada’s economy and, without question, the law firms and individual attorneys who practice in the state. However, even in these challenging times, many are taking the opportunity to be better prepared for future success.
With the near record-low interest rates we are currently experiencing, many members of the legal industry are considering an owner-occupied solution, whether existing or new construction. Provided an applicant meets all credit approvals and submits the required legal documentation ensuring regulatory compliance, the Small Business Administration’s (SBA) 504 loan program makes an owner-occupied property particularly attractive. Many applicants will be able to finance new or an existing building for roughly the same, or even less, than they currently pay to lease space.
An SBA 504 loan is funded by two sources, the SBA via debentures and a financial institution. Spreading the loan’s risk over two sources generally results in more beneficial loan rates and terms. A 504 loan requires less upfront equity from the business owner, and unlike conventional loans, which can be variable, an SBA 504 debenture is fixed. Lower loan payments spread over a 10, 20, or 25-year loan term will allow a business owner to preserve capital for business operations.
The blended interest rate between the SBA loan and the financial institution can be very attractive. These lower rates and attractive loan terms may make it an ideal time to investigate whether a 504 loan fits into your company’s long-term strategy.
If the business shuts down midway through the loan term, the SBA 504 loan can be assumed by the new owner, providing they meet all the loan qualifications. There are not many loans that allow that kind of flexibility.
Complete eligibility guidelines for a 504 loan can be found on the SBA’s website, www.sba.gov, under “Funding Programs.” Generally, business applicants are eligible for a 504 loan if the business operates as a for-profit company and the business, including its affiliates, have a tangible net worth of less than $15 million. Additionally, the business, including its affiliates, must have an average income of less than $5 million after federal income taxes for the two years preceding the application.
We know it has been a challenging year for many, many businesses. With today’s advantageous loan rates, it might be time to consider how your business will prepare for better days that are sure to come.
About the author
Sarah Guindy is a corporate banking manager at Bank of Nevada. She manages the Juris banking team, providing the tools, financial services, and customized solutions important to Nevada’s legal industry. Bank of Nevada is a division of Western Alliance Bank. Member FDIC.
About this article
This article was originally published in the “Law Practice Management” issue of Communiqué, the official publication of the Clark County Bar Association, (May 2021). See https://clarkcountybar.org/about/member-benefits/communique-2021/communique-may-2021/.
© 2021 Clark County Bar Association (CCBA). All rights reserved. No reproduction of any portion of this issue is allowed without written permission from the publisher. Editorial policy available upon request.