If you are a small-business owner who’s been thinking about buying, rather than leasing, space for your company, now is a great time to explore owner-occupied real estate.

Commercial real estate has yet to rebound, and properties that were once out of reach are now attainable. In most markets, you can get better space for less money. Also, interest rates on mortgages are at record lows, hovering at around 5 percent for some buyers.

For small-business owners who have survived the down economy, the opportunity to buy a building or other facility to house their business is one of the recession’s few silver linings.

Even one of the biggest hurdles – the ability to borrow money to finance a real estate purchase – can be overcome with a type of loan many business owners aren’t even aware of. The U.S. Small Business Administration offers loans that are often a great fit for small businesses. Over the past few years, the federal government has expanded the program, increasing the amount of available capital, improving loan terms and expanding eligibility. A full 97 percent of small businesses are now eligible to apply for SBA loans.

In addition to prospective buyers, SBA loans also help real estate agents and sellers of commercial real estate. The availability of the loans brings in a whole new group of potential buyers and helps in marketing the properties. Surprisingly, despite the fact that they’ve been around for several decades, many business owners and even some real estate professionals don’t know about or understand SBA loans.

Approval More Likely

What is it about SBA loans that sets them apart and makes them so useful? For one, credit is still tight and getting a loan is still challenging. SBA loans are government-backed, meaning banks assume substantially less risk; as a result, they’re much more willing to lend using an SBA loan. That, of course, makes approval much more likely.

It’s not at all uncommon for business owners who’ve been turned down for a regular bank loan to get an SBA loan. In fact, making credit available to people who can’t get it through conventional channels is one of the key purposes of the SBA loan program.

A typical SBA 504 loan deal might look something like this: The business owner is interested in a $1 million dollar property. He or she puts down 10 percent, or $100,000, and the bank makes a loan for the other 90 percent, putting in $900,000. What makes an SBA loan different, however, is that after the deal closes, the SBA wires $400,000 back to the bank, significantly lessening its exposure. The borrower ends up with a $500,000 first mortgage and $400,000 second mortgage in the form of debenture. Both loans are payable over 20 years without a balloon or maturity.

SBA loans also offer clear advantages to borrowers. The down payment can be as low as 10 percent and the loan term can be 20 or 25 years, making monthly payments more affordable. As a result, business owners can keep more of their money, enabling them to invest in their business and have a financial cushion. Typically, there are no balloons or maturities within this loan program.

SBA 504 loans are also versatile; they can be used for building, buying or renovating property and purchasing machinery and equipment. In the case of a dental office, for example, the dentist can purchase a property and fully outfit the space, including new carpeting and fresh paint; specialized equipment such as x-ray machines and drills; custom plumbing to make water available in each treatment room; and a computer system that supports electronic medical records.

Another advantage is that in most cases, the loan can be fully assumed by the next purchaser of the property, a feature not available with a conventional loan. That not only makes it easier to find a buyer, the business owner who originally purchased the space exits the deal with no liability.

Buy Or Lease?

While the advantages to owning can be considerable, it’s not right for everyone. On the plus side, it allows businesses to lock in their location, which can be very important depending on the type of business and its customer base. Ownership makes it easier to predict real estate costs over the long term. It also provides space for expansion, either immediately or in the future. Finally, the space can be fitted out to meet the business’s exact needs, similar to the example of the dental office.

The next step is finding a suitable property and negotiating a sales price with the buyer. Typically, business owners can’t begin applying for an SBA loan without a written sales agreement that has ideally been reviewed by an attorney. Then, they can go to one of two sources to initiate the loan process, either an SBA-approved bank lender (not all banks can issue SBA loans) or a certified development corporation. In many cases, the CDC and the bank work closely together.

At that point, business owners will need to do everything possible to make themselves attractive to lenders, such as having a well-thought out business plan that details what they plan to do with the money; a clear understanding of their market and industry; evidence of cash on hand and a healthy cash flow; and good credit.

Right now, competitive prices, historically low interest rates and the availability of flexible capital through the SBA loan program can add up to a great opportunity for small-business owners.

Robert Polito is a senior vice president and director of government guaranteed lending for Webster Bank.