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The manufacturing industry in the Bay Area is thriving. More than 7,500 manufacturing companies are in operation, employing more than 340,000 people and representing 10% of the local workforce. While the industry is no doubt flourishing, owning a manufacturing business can be challenging, particularly when it comes to managing expenses.
In this growing Bay Area market, manufacturers can run into cash-flow problems for several reasons. Overhead expenses have the potential to be exceptionally high, customers can take a long time to settle their accounts, and the cost of supplies and materials can rise rapidly without warning. There are a variety of small business loan options manufacturers can utilize to remedy some of those 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 purchase 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 their facility with as little as 10 percent down. Certain circumstances may require a down payment of 15 percent, such as if the business is less than two years old. In either scenario, the down payment is considerably less than a conventional loan, which can be as high as 40 percent. This low down payment allows small manufacturing businesses to conserve more cash.
- Below market, FIXED interest rate– The SBA 504 loan allows business owners to lock in a below market rate. In the Bay Area’s climate of rising rents, this gives you peace of mind knowing your rate won’t fluctuate due to lending conditions. Steady occupancy costs allows you to focus on your business operations.
- Long repayment term– The 504 Loan is fully amortized for real estate loans for 25 years, making loan payments more affordable and improving monthly cash flow.
- No balloon payments!Balloon payments mean you’ll have to pay a large sum at the end of your loan’s term OR refinance your loan. This headache is avoided with the 504 loan.
- No additional collateral is required.The only collateral you need is the asset you are acquiring.
- Eligibility requirements– One of the best benefits of the 504 loan program is that MOST businesses are eligible, but manufacturing businesses in particular have the most lenient qualification standards. The business must be for-profit and 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.
- Equipment Financing- In addition to real estate, the SBA 504 loan program allows business owners to finance equipment and other fixed assets, such as fixtures, furnishings and machinery. Machinery, equipment and other assets that have a useful life of 10 or more years are eligible for 90% financing and a 25-year term. No appraisals are necessary and taxes and installation fees can be included in the total project cost
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 you with the loan product that will best support your growth, gain long-term success and create a positive impact on your community. CDCs guide business owners through the entire loan process and act as the owner’s advocate throughout the life of the loan.
CDCs can provide a prequalification analysis to small business owners, so they know their purchasing power and can act fast when they find the right opportunity. A prequalification letter can give you a leg up over other offers, which in the competitive Bay Area market, can make or break a deal. TMC can provide a free prequalification letter within 48 hours.
TMC Manufacturing Client Success Stories
Oakland Pallet Co. Inc – is a manufacturer and supplier of custom recycled pallets with several locations throughout Northern California. After leasing warehouse space for many years, owners Carlos and Javier Padilla decided it was time to stop making lease payments to a landlord. They obtained SBA financing that funded 4 different projects totaling $9 million!
The low down payment and attractive long-term fixed interest rate of the SBA 504 program made buying their buildings possible. Today, the brothers write rent checks to themselves and do no have to worry about the rising lease prices in the Bay Area.
“It was important for Oakland Pallet to continue to expand, not only to keep up with business demand, but also to set an example for other minority-owned businesses in the California manufacturing industry” explains owner Carlos Padilla. “TMC guided us through our SBA loans and were responsive to our need and questions. Essentially, the financing allowed us to keep operating costs intact, and make and invest in the family’s future.”
The low down payment and attractive long-term fixed interest rate of the SBA 504 program made buying their buildings possible. Today, the brothers write rent checks to themselves and do not have to worry about the rising rental rates in the Bay Area.
“It was important for Oakland Pallet to continue to expand, not only to keep up with business demand, but also to set an example for other minority-owned businesses in the California manufacturing industry” explains owner Carlos Padilla. “TMC guided us through our SBA loans and were responsive to our need and questions. Essentially, the financing allowed us to keep operating costs intact, and make and invest in the family’s future.”
Heritage Solutions – designs and produces customized packaging and offers the most advanced digital printing in North America. Their success is heavily reliant on the quality of their equipment has obtained two 504 loans from TMC. After using a 504 loan for the $10.5 million purchase of a 230,000 square foot warehouse in Lathrop, CA, the company borrowed $7.2 million to purchase a custom precision printer from Germany!
Owner John Tatum attributes much of Heritage Solution’s success to the availability of the SBA 504 program.
“Without SBA help we couldn’t afford to buy this equipment,” Tatum explains. “This is the best printing machine in the country and no one else has it but us. Without the SBA and the ability to finance over 20 years, I would have been too scared. If we had to finance the machine over five to seven years like most loans, I don’t think we could have done it.”
Ultimately, SBA 504 loans are a great solution for growing manufacturers looking to stabilize their occupancy costs. Property acquisition through an SBA 504 loan is an accessible and affordable way to grow your business and solidify your financial security later in life. Contact TMC financing to learn more on how a commercial real-estate purchase can enhance your business growth.
About TMC Financing
TMC Financing is a leading Certified Development Company providing SBA 504 real estate financing in California and Nevada. During the past 35 years, TMC has provided over $9 billion in financing for more than 5,000 businesses including a significant number of manufacturing companies. During the past three years alone, TMC has provided financing to over 50 manufacturing businesses. These businesses are projected to create over 700 jobs.
If you are a manufacturer looking to finance a real estate purchase for your business in California or Nevada, contact a TMC Financing loan expert to find out more.
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