FAQ – Leaseback and Rental

My accountant told me that there are tax advantages to me if I own the real estate personally and lease it back to my company. Is this practice permissible to the SBA?

Yes, however, anyone who owns 2% or more of either the real estate OR the company will be required to sign a Personal Guaranty for the entire SBA loan.

An Employee Stock Ownership Plan (ESOP) owns a portion of the stock of the corporation and I own the remainder. I plan to own the real estate personally and lease it to the corporation. Must the ESOP provide a guaranty for the loan?

If the ESOP owns 20% or more of the corporation at the time of application, than a guaranty would be required. If the ESOP cannot provide such a guaranty, then the SBA loan could not be to an eligible passive company.

The SBA may occasionally waive the requirement for a guaranty from an ESOP if the 504 loan has been made to the operating company.

Is it permissible for two or more owners (such as two doctors each owning his/her own practice) to jointly purchase a building using the SBA 504 loan program and then lease back space to their individual businesses?

While it IS permissible for two (or more) unrelated owners to purchase or construct a building together, then each lease back a portion, borrowers should keep one important fact in mind: in order to qualify, each person who owns 20% or more of either the building OR either of the operating companies must offer a full personal and corporate guaranty on the entire project.

Another possibility would be for the two owners to turn the building into a condominium, with separate legal descriptions. In this way, each person will be asked to guaranty own his/her own portion of the building.

Because I expect my company to continue to grow rapidly, I would like to construct a building larger than what I will need at first. Is it possible for me to rent out some of the space for a few years?

For new construction, the SBA permits rental of up to 40% of the space in the short term; however, by viewing the company's projections, the SBA expects that your company will begin to occupy a portion of leased space within three years of the loan. Only 20% of the total area may be leased out permanently.

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