Two men standing in a kitchen with one man leaning on the other.

Financing for Restaurants: Three Reasons to Use the SBA 504 Program

Opening and operating a restaurant requires significant upfront costs and ongoing expenses. From purchasing and renovating a space, to buying kitchen equipment and furnishings, to funding payroll and other operating costs, restaurateurs need access to capital. The SBA 504 loan program is an attractive financing option that can help restaurant owners secure the funds they need to successfully open, operate, and upgrade their space.

SBA 504 Program Basics

The SBA 504 loan program is the premier economic development initiative administered by the Small Business Administration (SBA). This public-private partnership provides a long-term fixed rate lending solution for small business owners to buy, expand or refinance major fixed assets – such as land, commercial real estate, equipment, and heavy machinery. The 504’s borrower-friendly terms include:

  • Low down payment – up to 90% financing for established businesses, freeing up capital reinvest in the business for other expenses
  • Below-market interest rates – lower and more affordable monthly mortgage payments
  • Long-term rates 10 (typical for equipment purchases), 20 or 25 year fixed – no surprise balloon payments

Build Equity

When a 504 loan is used to finance the purchase of commercial real estate, the restaurant owner builds equity as they pay down the loan. Rather than making rent payments with no long-term asset accumulation, the monthly mortgage payments help the restaurant owner acquire full ownership over time. Additionally, owning the real estate provides provides security even if business fluctuates.

Building equity provides financial stability and gives the business an asset that can be leveraged in the future. This wealth creation is a major advantage of using a 504 loan to buy, rather than lease, a space.

Flexibility to Personalize and Renovate

Building ownership is just the start of the SBA 504 loan. Owners can use the 504 to optimize the front of house layout, ambiance, and kitchen setup. Whether it’s a pizzeria, sushi spot or steakhouse, the 504 loan provides the financing to create a personalized environment. This can help increase service efficiency, establish a brand, and most importantly, attract customers.

As with all SBA 504 real estate purchases, the business must occupy at least 51%of the building purchased. If the financing is for the construction of a new building, the business must occupy 60% of the building.

Leverage Equity for Cash Out

In addition to building equity, for those restaurant operators who already own their building, the SBA 504 refinance program may be a great option to save and improve cash flow.

In addition to the lower monthly payments, fixed 20 or 25 year low interest rate, and payment predictability of the 504 loan, refi clients can take cash out for eligible expenses. The cash out piece ranges up to 20% of the appraised value of the property. Eligible expenses for cash out funds include:

  • Salaries (non-owners)
  • Utilities
  • Inventory
  • Business line of credit and business credit card debts

Download the program flyer and connect with a member of SomerCor’s loan origination team to learn more about how the SBA 504 loan program is a great fit for the restaurant and hospitality industry.

Contact Us

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Margaret Griffin

EVP, Chief Lending Officer
(312) 360-3320

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Eric Bacon

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Darin Gehrke

SVP Market Lead for Central and Southern Illinois
(217) 793-1075

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Elisabeth Williams