How Do SBA Loans Make Commercial Property Cheaper?

Here’s what you should know about the SBA loans in the new stimulus bill.

You all know by now that I’ve been following the financial world for the last few years. Today I have a piece of information that I’m excited to share with you, and I hope you share it with your friends and family. 


With the new COVID-19 stimulus package, SBA loans are here. Traditionally, it carried a 2.3% rate on a guaranteed fee, but that has now been cut in half to 1.5%. The origination fee has been eliminated as well. When you close a loan, SBA will also pay your first three months of your mortgage.


Why is this so exciting? Buying property for yourself or your business will end up costing less than renting if you take advantage of these rates. With the SBA loan at 2.5% over 25 years and 3.5% fixed for 25 years, the two-blend rate is roughly 3%, for conversation's sake.



   The payment on these loans is fixed for 25 years.   



Here’s a real example of the savings you could see on an industrial building: Let’s say you found something for $210 per square foot and finance $189 per square foot of the purchase after putting 10% down. After a 25-year amortization period at 3%, the cost ends up being 90 cents per square foot. That’s pretty much the rent you’d be paying right now for this kind of building.


Now an example of a commercial property: Let’s say it’s $400 per square foot and you finance 90% ($360 per square foot) after a 10% down payment. That will be a payment of $1.71 per square foot, which is considerably lower than the $2-per-square-foot average for rent. The payment is fixed for 25 years and the rate will stay the same.


Finally, let’s compare apples to apples by talking about the net lease, which covers the insurance on the building. On top of that, I always talk about appreciation in California, which is roughly 6% per year. Let’s say your industrial building goes from $210 to $250 per square foot, a 15% increase. The magnified return from your down payment on this is 1500%.


If you have any questions for me about this topic or other real estate questions, don’t hesitate to reach out via phone or email. I look forward to hearing from you soon.


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