Small Business Owners Look To Invest In Property
More small business owners in Inland Southern California are going after government-backed loans to buy the property they operate out of, taking advantage of low interest rates and property values, data released this week found.
There was a 17 percent increase in the money borrowed by business owners looking to purchase San Bernardino and Riverside county real estate in the last six months, according to CDC Small Business Finance, a nonprofit corporation that assists businesses in going after Small Business Administration-backed loans. The report compared the period between Oct. 1, 2012, and March 31 of this year, representing the first half of SBA’s fiscal year.
During the same six months in the previous year, business owners received $153 million to fund purchases of this type, CDC Small Business Finance reported. There were 82 transactions in the recently-ended half year, compared to 78 in the previous year.
The financing deals, called 504 loans, allow business owners to purchase the building, stop paying rent and accumulate equity, as long as they continue to use at least 51 percent of the property to operate the business.
This kind of market activity is being driven by historically low interest rates. An entrepreneur who goes to the bank to discuss a 504 loan this month can get a 20-year loan with a 4.15 percent rate, according to CDC’s data. A year earlier the rate was 4.74 percent, and it was about 7 percent four years ago before the Federal Reserve vastly lowered its fund rates in response to the recession.
Also, developers and investors are becoming more interested in Inland-area commercial properties, meaning that prices will rise.
“People are thinking that the commercial real estate market has bottomed out and are trying to get in now,” said Donald Murray, president of Commerce Bank of Temecula Valley, a small business lender.
Murray likened these types of deals to part of a retirement plan. Years after the business owner stops working, rental income keeps coming in.
The office market in the Inland Empire has the highest vacancy rate of any sector, 20.5 percent in the first quarter of 2013, according to a recent report by the Ontario office of Cushman and Wakefield. That could explain why the owners of medical businesses got $49 million of the 504 loan money, the most of any type of small business, said Larry Nuffer, CDC Small Business Finance’s director of marketing communications.
“That happens a lot. Health care is one of the healthiest sectors,” Nuffer said. “It’s pretty recession-proof.”
This time the data was skewed in that direction because of the purchase of a retirement home in Indio, Nuffer said. Rounding out the top five were wholesaling at $38 million, manufacturing at $26 million, hotels and food at $25 million and other retail at $12 million.
As small businesses begin to take on long term debt Citi Wide is able to offer short term financing for working capital and other expenditures.