How to Expand a California Construction Business Using a 504 Loan

Posted on | by Barbara Morrison

The construction industry is growing in most markets throughout the country, with some areas of California seeing growth as high as 38%. Even so, labor shortages combined with intermittent, project-based employment patterns can lead to increasing difficulties hiring and retaining personnel. That can be a challenge to business operations.

To keep employees working longer, and to take advantage of the growing opportunities on the construction market, you can expand your business! This could mean adding to the number of services your construction company offers, or increasing your capacity in the services you already provide. Regardless of the shape your vision takes, a Small Business Administration (SBA) 504 loan provides the flexibility and affordability necessary to make these types of expansions possible.

Grow Your Construction Business by Diversifying

It’s important to keep your employees busy between major projects and during seasonal slow periods. This ensures you have a workforce at the ready and also improves the lives for your employees, who will experience fewer income interruptions. Depending on your local market and business inclinations, your construction business could expand (and fill up that schedule) by moving into related services, such as:

  • road grading/paving
  • tree removal
  • waterproofing/weatherproofing
  • seismic retrofitting
  • interior renovation/finish work
  • insulation installation/energy efficiency upgrades
  • roofing

For example, say you are a construction company owner in Northern California. You could target the landscaping or architectural needs of local vineyards and wineries, which are currently expanding and renovating at a rapid pace. Or, you could explore  the world of seismic retrofitting, which is in demand along the entire coastline (especially in Los Angeles, where local law has mandated that thousands of buildings be retrofitted by 2023.)

Using a 504 Loan to Expand a Construction Business

Whether you are looking to do more of what you already do best or to offer new services, you’ll need more space and new equipment. The SBA 504 loan is specifically set up to help you grow your physical space, whether that is buying the building you rent or doing some ground up construction. The 504 loan also can help you finance new equipment purchases, as long as the machinery has a service life of ten years or more.

The 504 loan is designed to provide small business owners access to high-quality financing to help them expand their businesses by partnering with a nonprofit Certified Development Company (CDC) like TMC Financing, splitting the loan into three parts:

  • The first is a loan from a conventional lender—a bank or a credit union—for 50% of the total project amount. The interest rate and terms of that loan are determined separately, and it becomes the first mortgage. TMC can help match the borrower with the perfect banking partner for this loan, if requested.
  • The CDC facilitates a separate SBA loan of 40% of the total, up to $5 million, at a fixed, below-market rate. Projects eligible for the SBA’s Green Energy Program can receive up to $5.5 million. This is the second mortgage.
  • The borrower contributes at least 10% to the loan as down payment. Certain types of facilities are classified as single-purpose properties by the SBA and require a 15% down payment.

Thanks to the flexibility of a 504 loan, you can expand your construction business through several projects, rather than a single large project. This will enable you to gradually roll out a broader range of services and upgrade those that are in greatest demand. Finally, it offers unamortized repayment terms of 10, 20, and 25 years, so you can take the time you need to grow your business at a comfortable, stress-free rate.

You can find out more about how you can use a 504 loan to expand your construction business from one of TMC Financing’s 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.

Barbara Morrison
Barbara Morrison
Barbara Morrison, a local small business advocate and civic leader, founded her first company TMC Financing in 1981. TMC is a Certified Development Company that provides commercial real estate financing to small business owners via the SBA 504 Loan Program. TMC consistently ranks among the top certified development companies nationwide, and has funded projects worth more than $9 billion across California and Nevada. Nearly 5,000 small businesses have benefitted from this financing, resulting in the creation of an estimated 50,000 jobs. TMC is also the No.1 SBA 504 hotel lender in the United States. Barbara is also the founder of Working Solutions, a Bay Area microlender whose mission is to provide micro entrepreneurs, particularly low-income individuals, women and minorities, with the access to capital and resources they need to start a successful business.
Barbara Morrison
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