If you are leasing property for your private school, you’re likely paying hundreds of thousands of dollars a year in rent. The estimated average cost to lease a school building is $350,000 annually. Utilities and remodeling add another $160,000. While these numbers can change based on location and economy, that’s a lot of money that could instead be used to grow your private school by financing the purchase of your own building with a Small Business Administration (SBA) 504 loan through a Certified Development Company (CDC) like TMC Financing.
Why Is Now the Right Time to Grow My Private School?
According to a February 2018 US Market Research Report, the private school industry has enjoyed a steady rise in annual revenue, topping $68 billion in 2017. And while total enrollment in private schools has declined over the past decade, the report projects, “over the five years to 2023, as economic conditions continue to improve, household income levels are expected to increase, making it easier for families to afford private school tuition.”
In preparation for this economic boom and in order to take advantage of the expansion of tuition vouchers, this is the perfect time to consider investing in growing your private school. This is especially important as charter schools, a rising form of competition, has shown a 6x increase in enrollment in the last 15 years and can claim up to 5.4% of students.
What Are the Financial Benefits to Buying My Building with a 504 Loan?
One particularly flexible and affordable financing option is the SBA 504 loan. This Small Business Administration loan program partners with conventional lenders like TMC Financing to provide private school owners affordable financing options to purchase real estate.
Unlike traditional public or charter schools, private schools do not rely on government funding. Rather, they must generate their own financing. This means that every penny needs to be used wisely, and paying expensive leases simply do not serve you best. By using an SBA 504 loan to buy your building, you free up that money to invest in increasing enrollment, hiring the best staff, developing competitive curriculums, and fundraising efforts. For the price of a few years of renting, you could own your building and benefit from any upgrades or remodels you decide to initiate.
Speaking of upgrades, remodeling faculty offices, classrooms, or laboratories can keep your private school ahead of a competitive market, but it can also be a drain on resources. The SBA recognizes that the ability to upgrade your building affordably is key to business growth, and so has made sure that the 504 loan also covers remodeling costs, and even the purchase of equipment with a life of ten years or more.
A third benefit of using a 504 loan to buy your building is the Green Energy Program, which can boost your loan amount to $5.5 million if you use it to increase environmentally friendly and/or energy efficient utility options.
To qualify for the Green Energy Program, you can:
- Buy or construct a building that consumes 10% less energy than your current location
- Make upgrades to the building you currently own to consume 10% less energy
- Buy or construct a building that produces 10% of the energy it consumes or produces fuel from renewable sources, or buy equipment to do so at your current location (Renewable energy sources include solar, wind, geothermal, biomass and hydropower)
How Do I Get Started With A 504 Loan to Grow my Private School?
The best way to get financing for growing your private school is to speak with an expert at a nonprofit Certified Development Company (CDC) like TMC Financing. CDCs guide you through the SBA 504 loans easy prequalification process and set you up for success, as well as break down the way the loan is set up.
The 504 loan provides affordable financing for private schools and encourages lending by conventional lenders (banks and credit unions) by providing them with low-risk conditions. The 504 loan program partners a CDC with a conventional lender to provide a loan in three parts:
- The first is a loan from a conventional lender—a bank or a credit union—for 50% of the total project cost. The amount and conditions of that loan are determined separately, and it becomes the first mortgage. TMC can help match the private school owner (the borrower) with the perfect banking partner for this loan, if requested.
- The CDC facilitates a separate SBA loan of 35% of the total at a fixed, below-market rate. As discussed above, projects eligible for the SBA’s Green Energy Program can receive up to $5.5 million. This is the second mortgage.
- The borrower contributes 15% to the loan as down payment.
The 504 loan has a 10- or 20-year term, with a 25-year option recently made available. It is fully amortized (so there are no balloon payments) at a fixed, below-market rate.
A 504 loan is flexible enough to finance the growth of private schools by providing funds to purchase a building, renovate faculty and student spaces, and even incentivize green energy to increase your competition in the industry.
You can find out more about 504 loan financing and the Green Energy Program from a TMC Financing 504 loan experts. TMC is an SBA Premier Certified Lender and a high-volume loan provider. With over 35 years of experience, TMC can help you find the financing that is best for you and guide you through the 504 loan process. Contact TMC Financing today.
- Using the SBA Green Energy Program to Increase Commercial Financing - April 18, 2023
- What Is a Certified Development Company? - May 12, 2022
- Turn Equity Trapped in Real Estate into Cash with the SBA 504 Program - April 23, 2020