Your Financial Questions Answered With Eric Halvorson

Written by: Andrew Jason

Photo by Hillary Ehlen

You’re an expert in your industry. That’s why you became an entrepreneur. But, you don’t know anything about corporate structure, tax filings, loans, HR or the thousands of other minutiae you deal with every day. 

At Fargo INC, we want to help businesses grow. That’s why we found 10 business owners and executives and asked them for their toughest business questions. We then paired them up with an expert in that industry. Here are your questions answered. 

Financial Expert
Eric Halvorson
Senior Vice President and Fargo Commercial Loan Manager of Bell Bank

Business Executive
Kari Score
President of Dakota Storage Products, Inc

Should I keep leasing the space where we are at or would it be wiser to purchase a building or build one? 

Whether you should lease, build or purchase your commercial space really depends on how much capital you have to support your growth.

If you’re making more money from your operating entity than your property and you’re considering expanding to other locations, your best route is generally to lease. Most retail businesses – including big box stores – don’t own their space. They often do long-term leases, even of 20 to 25 years, to keep their money in the business, rather than putting their capital into real estate. 

However, if you’re looking to expand or change locations, we can sometimes work it out so your loan payment is lower than your rent payment – especially with today’s great, low-interest rates. If that’s the case, owning is usually a better option, because you’d be building equity in your building, which you could later sell. 

We can also work with the Small Business Association’s 504 Loan Program, which offers qualified applicants lower down payments and fixed interest rates on a portion of the loan for up to 25 years.  

Experienced commercial lenders can take a look at your business plan to help you figure out the best option for you and your business.

Small Business Association’s 504 Loan Program

This program offers small businesses an opportunity to grow their business and create jobs. As of 2012, more than $50 billion in 504 loans have created more than two million jobs. According to the SBA, “504 Loans are typically structured with SBA providing 40 percent of the total project costs, a participating lender covering up to 50 percent of the total project costs and the borrower contributing 10 percent of the project costs. Under certain circumstances, a borrower may be required to contribute up to 20 percent of the total project costs.

Let’s look at an example of how this works. This example is courtesy of the SBA.

Example: You’re looking to do a $1,000,000 project that includes the following

  • Building Purchase
  • Land
  • Renovation
  • Furniture and Equipment
  • Soft Costs

Loan Structure

  • $500,000, first lien with bank (loan obtained from a private sector lender covering up to 50 percent of the total project cost)
  • $400,000, second lien with 504 loan, 20 year, fixed rate  (loan obtained through a CDC, funded through an SBA-guaranteed debenture, covering up to 40 percent of the total project cost)
  • $100,000, borrower contribution (contribution from the borrower of at least 10 percent of the total project cost)
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