Wolgast Blog

Is There a Future in Commercial Investment Properties for You?

Posted by Cory Sursely on Wed, Jan 06, 2021 @ 09:56 AM

Warehouse-3Have you considered commercial investment properties to add to your portfolio?  On a surface level, it seems like a long-term, but easy investment that will generate ongoing income and also potentially appreciate in value the longer you own it.  For those who have capital to invest, is it the right type of investment for you?

Something new to consider, the pandemic has quickly changed the use of buildings significantly.  Office buildings and retail shops may no longer be lucrative structures to take on.  Some experts are anticipating that more workers will continue to work from home and as online shopping gains popularity, it reduces the need for brick and mortar stores.  According to fool.com1 article “Commercial Real Estate Predictions for 2021”, warehouses, life sciences and data centers are thriving going into 2021 and looking for more space, despite the pandemic.  So, there are opportunities available.  It’s best to get your financial advisor, commercial realtor, and design/builder to work with you and identify a good opportunity.

What You Need to Know?

Prior to selecting a property and submitting a purchase agreement, you’ll want to evaluate and compare your options to make an educated decision on the best potential. Each market is different and the price of a building in the city limits will be different than one of similar size on the out skirts of town, so the most common way to compare them is the Cap Rate, also known as Capitalization Rate2. You can calculate the Cap Rate by dividing the Net Operating Income by the current market rate3. The Net Operating Incoming is based on the revenues that appear on the properties income or cash flow statement less the expenses of operating the building (i.e. maintenance, utilities).

How to Add Value to the Property

Finding a lower cost property that needs updates can help you buy low and sell high.  Depending on the building grade, most commercial properties don’t require the highest quality finishes, so if you focus your updating budget to make the building more efficient with energy saving materials, automated controls and more technology, you’ll save money on operating costs and make your building more competitive.  Additionally, when it comes to warehouses, life sciences and data centers, increasing the size, adding truck docks, or cold storage or heat to a building can expand your lessee potential, and add value for appreciation.  Your design/builder can help you identify what types of updates should be made for good ROI.

Financing Help

As an added incentive, you can use the SBA 504 loan as long as you occupy 51% of an existing building purchased or 60% of a new building from the ground up. According to their website, sba.gov4, it is a requirement of the SBA 504 loan that the owner occupy part of the building they are financing, but the loan allows for purchasing more building to lease out as investment property. The SBA 504 loan offers 10% down by the purchaser, an SBA lower/fixed interest rate loan for 40% to be repaid over 20 years, and the remaining 50% is financed through a traditional bank loan.

Your Turn: Is Commercial Investment Property something that you have considered?  What have you found helpful in making your decision? What kind of questions do you have?  We'd like to hear from you in our comments link below.  Otherwise, you could contact us at 800-WOLGAST.

1 https://www.fool.com/millionacres/real-estate-investing/articles/commercial-real-estate-predictions-for-2021/

2 https://www.investopedia.com/terms/c/capitalizationrate.asp

3 https://www.investopedia.com/terms/n/noi.asp

4 https://sba504.loans/sba-504-blog/sba-504-loans-for-real-estate-investment


Tags: Design/Build, Financing Construction

Tips to Pass a School Bond Election

Posted by Cory Sursely on Wed, Sep 04, 2019 @ 01:25 PM

VoteI have found that there’s not a single formula to passing a school bond vote.  Every community is different in regard to their support of their school district, so each campaign needs to be tweaked and managed.  However, Wolgast's School Facility Specialists have discovered a couple of tactics over the years as former School Superintendents on how to give every bond campaign a better chance for success and offer their expertise as part of our Pre-Bond Services.

First, the most important aspect of a success­ful millage election is staff and community involvement in the planning process. With that said, the likelihood of the passage of a millage proposal is determined days and even months prior to the election.  The devel­opment of the bond proposal, the inclusion of groups that will be af­fected by it, along with the marketing plan and execution are all key ingredients that will help lead to a successful election.

Another key is to focus on the “yes” voters rather than spending your budget or energy on converting the “no” voters.  Then help the “yes” voters by reminding them of registration deadlines, and when and where to vote.

Sometimes Districts can qualify for state and federal funding programs to help supplement building projects.  When qualifying for the additional funding, School Districts were able to ask voters to approve smaller bond amounts while securing enough budget to complete their construction needs.  Bond elections pass as voters recognize the savings to their District’s general fund to help maintain safety and educational programs.

To find out more about the funding programs or to have a free seminar with our School Facility Consultants please call 800-WOLGAST.


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Tags: Schools, Construction Management, the Wolgast Way, Financing Construction

Four Steps for School Boards to Plan a Construction Project

Posted by Cory Sursely on Thu, Aug 15, 2019 @ 08:00 AM

School Board MeetingSo, you’ve been elected to your District’s School Board and have four years (or so) to help make the best decisions for the students and staff. You likely anticipate facing many issues that’ll require research plus your life experience to decide what’s best for your School District. One of those issues could be the maintenance, remodel, rebuild or relocation of school buildings. Do you know where to start? Below, we explain the steps you should take to have a successful construction project.

Step One – Facility Study

You start with a Facility Study to gain information on what your District needs to repair or improve. More specifically, a Facility Study conducted by a team of a qualified Architect and Construction Manager who’ll help you identify and organize what is necessary to maintain or improve the quality of education you’re currently providing. The Architect and Construction Manager should have experience conducting Facility Studies, so ask for their resume. 

A Facility Study will provide you with information regarding maintenance issues, instructional enhancements, future space needs, safety issues, and technology requirements, to name a few. Future decisions will be made easier by acquiring information from the Facility Study that assists you in prioritizing the District's needs.

Step Two – Funding

Once your board determines which buildings need construction services, the Superintendent and School Board have to find a way to pay for the projects. Currently, there are a variety of federal and state programs to supplement your general fund. The state’s treasury website can offer a lot of information, but so can a meeting with Wolgast’s School Facility Consultants, who can guide you through the process and find the best option for your District.

Step Three – Bond Campaign

As we stated in our blog, “Tips for Passing a School Bond Election” there’s not one way to pass a bond election because each School District is different. There are, however, things that a school board and bond committee can do to help every bond campaign, such as getting staff and the community involved early in the campaign. Please see the referenced blog for more information.

Step Four – Construction

Typically, when you work with a Construction Manager on the pre-construction services listed in steps 1-3, you have an agreement to use them to oversee the construction of the project. They’re your advocate throughout the project from pre-construction through completion. Through weekly meetings and open communication, you, the Architect and the Construction Manager are a team that ensures the project gets done on-time and within budget.

We would be more than happy to present to your School Board our seminar on “Steps for Planning a School Construction Project”, please contact an Education Facility Consultant, Rich Ramsey, Michael Pung or Joe Powers at 800-956-4278 for more information.


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Tags: Schools, Construction Management, the Wolgast Way, Financing Construction

The Benefit of Design/Build Phase I Drawings

Posted by Cory Sursely on Mon, Feb 11, 2019 @ 08:00 AM

plans and rolled plansPreliminary plans, such as those provided in a Phase I of the Design/Build process, are the most efficient and economical means to determine the budget for your construction project.

While there has been a shift in the numbers1, there are still many business owners out there who are skeptical of the Design/Build method of construction.  They are more familiar with the traditional Design/Bid/Build method where they hire an architect, then have general contractors competitively bid the project, and the contractor with the best price/value builds the project. 

Early on, when we’re discussing the benefits of Design/Build with those who are skeptical, they have a difficult time accepting that they need to pay the nominal fee for the preliminary drawings (Phase I Design) so we can estimate the construction budget.  Those who are accepting of it realize that they would be paying that and more at an independent architecture firm. 

In the Design/Build process, the Phase I fee is nominal to cover the team’s time to complete a needs analysis, make necessary regulatory investigations, create a preliminary design and seek bidding resources for a preliminary budget.  Having a pretty accurate, yet ball park, estimate early in the process helps an owner obtain funding earlier.  The information gained during the Phase I is accurate and sufficient to take to a bank to secure financing.  Clients never get a separate bill for the Phase I cost unless the project doesn’t come to fruition, then the fees are billed to cover the team’s time at a fraction of the cost of a full set of plans.  Furthermore, if obstacles arise while a customer is planning to build a building that cause them to change their mind, it’s less risky to commit to a portion of the cost of the design while working through the initial process.

Additionally, having the flexibility to “tweak” the preliminary design so it fits within your budget is much more economical because you don’t have the engineering elements involved, yet.  Those get explicitly defined in the Phase II drawings.

When you add a Design/Builder to your team before you purchase property, they can assess the property and available utilities to provide the best use of space.  Also, prior to purchase, a Design/Build team can help coach an owner on contingencies in the purchase agreement as a buffer or a “get out of jail free card” if there are undesirable obstacles to using the property the way intended.

Those are the main benefits to committing to Phase I Drawings, but the Design/Build process has other benefits like completing construction faster, fewer change orders, open communication, and one entity having all the low bids.  Read more about the benefits of this method in our White Paper, "Why Some Business Owners Don't Do Design/Build, but Should".


Why Some Business Owners Don't Do Design/Build, but Should


1 According to “Design-Build Project Delivery Market Share and Market Size Report” by Reed Construction Data and RS Means Intelligence, Design/Build construction delivery method has taken an additional 9% of the construction market since 2005 and General Construction has lost 10% of the market share in that same time.

Tags: Medical Office Construction, Design/Build, the Wolgast Way, Scheduling, Financing Construction, Design, Dental Office Construction, Good for Business

What to Know about Lease Hold Improvements for Your Business

Posted by Cory Sursely on Thu, Oct 12, 2017 @ 09:56 AM

LeaseHold2Office Remodel (Part II)

As a business owner or manager, you want to make your working space comfortable,
attractive and efficient for your work force.  Currently popular in office settings is open
daylighting, LED lamps, replaceable carpet squares and work stations with standing options.  
If you don’t own your building, you may feel restricted to make these changes until your ownership
status changes, but it’s more likely that your landlord will be willing to work with you to make updates
and keep you as a tenant.

Lease Hold Improvements

Lease language can be long, tedious, and yet full of important details.  Depending on how long you’ve been in your building, it’s a good idea to refresh yourself on your remodeling stipulations.  There are commonly tenant improvement allowances available, or alternatively, savings on rent for completing updates to your office or shop.  If there aren’t already those permissions included, then leasehold improvements can be negotiated when you renew your lease. 

Typically, the tenant creates a list of the changes they’d like to make and turns that list over to the landlord for review.  The items that are approved and agreed upon are then put into a work plan for contractors to establish a cost.  Landlords prefer to work with their approved subcontractors in order to match the aesthetic already existing in the building.  From there, the landlord and tenant enter into a construction agreement with the allowance and cost pre-determined.  Additionally, there is a clause presented for fixtures that become part of the property.  These include items that would cause damage to the building if removed, so the tenant is notified which fixtures would stay if the tenant ever moved.

It is common for a landlord to amortize the renovation costs over the term of the lease, with the exception of a penalty and expenses if the lease is broken early.

There are other ways to negotiate a lease hold improvement.  For instance, you can negotiate a longer lease at the same rental rate, or if you can convince the landlord that you would like to pay for the remodel, there can be arrangements for a lowered rental rate (less popular).

Maintenance Coverage

One other important item in your lease contract is who is responsible for maintenance of the interior and exterior of the building you’re occupying.  We often see conditions of buildings in disrepair because the tenant thinks the landlord is responsible (or vice versa), however, the opposite is true, so certain maintenance items are neglected for the duration that the tenant is in the building.  The responsibility doesn’t always come to light until there is a more serious (and now more costly) problem.

Wolgast takes on remodels of all sizes and can provide tips for time and money savings, please contact us when you’re ready to design and construct your upgrades.  Whether it is a restaurant, business office, medical office, retail, manufacturer operation or school, we are experts at remodeling most every type of commercial building.  We are currently planning for winter and interior remodels (which is the best time to complete indoor work, if you ask us!).

Tags: Financing Construction, Remodel

How Economies of Scale Works in Construction

Posted by Cory Sursely on Wed, Oct 05, 2016 @ 10:26 AM

EconOfScale.jpgRay is the owner of a large corporation with his operation spanning over two locations.  When he outgrew his initial office, he got a great deal on a warehouse that was easily adaptable to expand his business.  Now, after years of hard work and smart decisions, he’s outgrowing both locations and has decided that it will be more efficient for his operation to all be under one roof.  But speculating on the costs involved, Ray is wondering if this is the best decision for his company right now?  What Ray may not be considering is economies of scale.  With his building being bigger and the duration of the project longer, and the fixed fees the same, he can benefit from the efficiencies that his design/builder will experience, which will lower the square footage cost.

In the construction industry, same as manufacturing, retail, and many other industries, there are ways to maximize work for optimal efficiency and also there are fixed costs that remain the same on any size project, which result in economies of scale.  For your meat market, it’s giving a discount for 3 lbs. of burger purchased so that they can sell out of the fresh stuff before grinding more and wasting what they have already ground.  For construction, it is a mix of labor and fixed costs that can result in a cost reduction for a building owner.

Large construction projects typically benefit from economies of scale for several reasons.  One, a contractor can hire an electrical crew to be assigned on site all-day for an extended period of time.  The electrician owner can anticipate consistently paying their staff a full day’s pay.  On smaller projects, the same crew could possibly work six hours, but still get paid for eight.  It’s unlikely that the crew can be assigned to a different project for those remaining two hours and still be productive.  This is less efficient use of their time versus a full shift and result in increased cost per square foot.

Two, there are fixed fees within general conditions (i.e. costs associated with making construction possible, beyond materials, supplies, and labor used on the building) that can remain the same regardless of the square footage.  For example, dumpsters, storage trailers, building permits, temporary electricity, barricades and insurance are a few types of things included in this category.  A project that is a longer duration will result in these fixed fees being a smaller percentage of their project cost than a project with a lesser duration because you only need to secure a permit one time, project signage and a fence are the same price once they’ve been installed throughout the duration, and once the equipment is mobilized to the site, the fee is the same while on site.    When you consider that a franchisee may elect to build three stores on three street corners in the same city, but each being a different size, the economies of scale will vary for each.  The largest store will have a lesser percentage of fixed fees per square foot, whereas the medium and smallest stores will have a larger percentage.  Bringing in a water line is the same cost for each, the bathrooms will likely be the same floorplan, but the percentage of the cost will be more in the smaller store than the largest store.

Third, going back to Ray and his building, he elected to use a pre-engineered metal building which was suitable for his operation.  He had to decide on using a 16 foot tall warehouse or a 20 foot tall warehouse.  He quickly realized that the fixed costs don’t change, so it would be mostly the material costs that would add to the final price of the building.  He chose the 20 foot tall warehouse to provide more storage and ultimately more room for his company to grow.

There are many factors that are in effect when estimating the cost of a building.  Regardless of the size, we have your best interest at heart and work to achieve the best value we can provide.  Please contact us when you’re ready to take the next step in expanding your business.  We can professionally design, accurately estimate, and expertly build your building quickly!  The Wolgast Way!


Tags: Professional General Contractor, Financing Construction, Good for Business

Is there cash hidden in your building? A cost segregation study can help you find it

Posted by Andrew Rose, CPA, Principal, Rehmann on Mon, Feb 29, 2016 @ 01:33 PM
(At Wolgast's request, CPA, Andrew Rose of Rehmann's Commercial Industry Group, generously shared the following expert insight into Cost Segregation to help guide our clients to find tax savings in their building.)

steelcase.jpgAs the economy rebounds, businesses are becoming more profitable. At the same time, higher individual taxes are placing a financial burden on business owners. If you’re looking for ways to reduce taxes and boost cash flow, consider a cost segregation study.

You may benefit from such a study if you plan to acquire, construct, or substantially improve a building, or if you’ve done so in recent years. These studies apply tax accounting and engineering principles to identify building components that qualify for accelerated depreciation. Armed with a cost segregation study, you may be able to cut taxes by claiming additional depreciation expense or capturing missed depreciation deductions from previous years.

An overview

Here’s how it works: commercial real property (excluding land) is depreciated over 39 years (27.5 years for residential rental real estate). Real property includes buildings as well as structural components, such as walls, windows, floors, ceilings, elevators, wiring, plumbing, and HVAC systems. Personal property – such as furniture, fixtures, computers, equipment, and machinery — is usually depreciable over five or seven years. Land improvements – such as parking lots, fences, sidewalks, landscaping, and outdoor lighting – are depreciable over 15 years.

It’s not unusual for owners to allocate costs to real property that could properly have been allocated to shorter-lived personal property or land improvements and depreciated more quickly. A cost segregation study reveals opportunities to reallocate these costs, accelerating depreciation deductions and reducing taxes.

Virtually any business can benefit, but cost segregation studies are particularly valuable for manufacturers, hospitals, hotels, restaurants and other businesses with specialized buildings. Often, property that would otherwise be considered a structural component depreciable over 39 years may be classified as personal property if it’s more closely related to a process or a particular piece of equipment than to the building itself.

A manufacturing facility, for example, might require reinforced flooring to support heavy equipment. Or a hospital may need special wiring or electrical systems to operate medical equipment safely. In many cases, the costs of these items are depreciable over five or seven years.

What are the benefits?

The actual benefits depend on the particular facts and circumstances, but for acquired, constructed or renovated buildings, a rough rule of thumb says you can enjoy net-present-value tax savings as high as 23 cents for each dollar that’s reclassified as personal property. If reclassified property qualifies for 50-percent “bonus depreciation,” the savings can be even greater.

You can also use a cost segregation study to reallocate the costs of real estate investments in previous years. Generally, this requires you to file Form 3115 – Application for Change in Accounting Method – with the IRS. This allows you to take a “catch-up deduction” in the current year for assets that were under-depreciated in prior years.

Evaluate your options

Cost segregation studies can yield significant rewards, but they’re not for everyone. The tax savings may be limited, for example, if your income is insufficient, you’re subject to passive loss limitations, or a property’s purchase agreement contains a purchase price allocation. If you think a cost segregation study would help your business, have your advisors perform an initial evaluation to get an idea of the potential benefits.

Bonus Content: Cost segregation example

Cost segregation studies offer significant tax savings, especially for businesses, such as manufacturers, with specialized facilities. Consider this example:

Wolverine Widgets, a heavy manufacturing company, acquires an existing plant for $10 million on July 1, 2013. If the company were to allocate the entire purchase price to the building, its depreciation deductions would be roughly $256,000 per year ($177,000 in year 1, under IRS tables). Wolverine obtains a cost segregation study, which concludes that 35 percent of the purchase price is properly allocable to 39-year property, 15 percent to 15-year property, 45 percent to seven-year property, and five percent to five-year property.

Based on IRS tables, and using the Wolverine’s first-year depreciation deductions are as follows:


Asset class


1st year depreciation

39 years



15 years



7 years



5 years






 In this example, a cost segregation study generated an additional $703,000 in depreciation deductions in the first year alone.

If you would like to get in direct contact with the author, Andrew Rose, CPA and Principal at Rehmann, he can be reached at Andrew.Rose@rehmann.com, or (517) 316-2414.

Also read: How to Make Owning Your Medical Office More Lucrative and Guest Article for Physicians: How to Boost Your Retirement Savings

Tags: Professional General Contractor, Financing Construction, Good for Business

How to Make Owning Your Medical Office More Lucrative

Posted by Cory Sursely on Tue, Jan 19, 2016 @ 10:34 AM

MedOwner.jpgFor most business owners, the short-term benefits of leasing their building are attractive, but we’re guessing that most owners would favor owning their building and having control of their business use at a fixed cost. For doctors who own their own practice and will likely stay in their location for 7 or more years1, owning their building can be a great investment for their future while allowing them to have a fixed expense until the building is paid off. As a contractor who specializes in both construction and leaseback services, we can educate doctors on how to leverage programs, accounting processes, and legal structures to make it more lucrative to own your medical office.

Note: we are passing along the knowledge that there are building ownership options and programs available, however, we recommend and advise that you contact your CPA and/or attorney before taking the steps featured here.

Help with purchasing the building

Most medical practices would qualify for the SBA 504 loan, which requires a lesser down payment (as low as 10%) then funds 50% of the cost through the Certified Development Company (CDC) at a lesser, fixed interest rate for 10 – 20 years. The remaining 40% is financed through a traditional commercial loan.  This program works well for small businesses who are growing, but don’t have a lot of working capital to expend on real estate, improvements or equipment. Being able to finance 80-90% of the cost couldn’t be a better deal for these businesses. For more qualifying information visit the SBA website or read our blog on the topic.

Lease the Building from Yourself for a Tax Reduction

By forming an LLC to purchase your medical office, your medical practice will be able to lease the building from your LLC, deduct the payment on the practice’s taxes, and your LLC members would be taxed on their individual taxes as a pass-through. This would eliminate the tax for your practice and LLC members would be taxed at a lesser rate for the building2.

Cost Segregation for Tax Savings

For business owners who purchase or build a building, a CPA can complete a cost segregation study to determine elements of a building that can be depreciated on a different schedule than the rest of the building. For instance, parts of your building that are considered "personal property or land improvements" can be segregated (i.e. desks, chairs, light fixtures, accent lighting, sidewalks, and landscaping). The cost of these portions of your building can be taxed on different tax schedules, 5, 7, or 15 years rather than the 39 year schedule your building will span. (Wikipedia) This will allow you to defer taxes and help you improve current cash flow3.  An even more in depth and professional explanation from a qualified CPA is included through the following link. Is there cash hidden in your building?

Accelerated Depreciation for More Tax Savings

Your building has a set period of time for useful life, by which the building depreciates each year. Accelerated Depreciation is an accounting process that allows you to depreciate the building more in the beginning of its useful life. Paying the larger amount in the beginning lowers your net income, which you are taxed upon. So having a lower net income in turn would lower your taxes. Good resources to better understand this process are http://crfb.org/blogs/tax-break-down-accelerated-depreciation and http://content.moneyinstructor.com/1509/calculatingdeprectiation.html .

Return on Your Investment

Probably the most enticing part of owning your own building is the opportunity to make a profit on the sale of it when you no longer need it. Another option would be to lease it to a new tenant when you retire and bring in ongoing income when you’re retired from the practice.

Buying a building doesn’t work for every doctor who owns his or her practice, but we wanted to make sure that you had considered all the facts. Whether it’s construction, remodel, or leaseback, we are able to accommodate your needs. Call Michael Shepard, Dr. PH, to discuss your building options. His background in the medical and construction industries will help guide you as you contemplate the future of your practice.

1 Fitsmallbusiness.com http://fitsmallbusiness.com/buying-vs-leasing-commercial-real-estate/

2 Beckner & Associates http://www.becknerassociates.com/Should%20I%20Own.htm

3 Ernst & Morris (www.costseg.com/cost-seg.html).

Medical Services


Tags: Medical Office Construction, Financing Construction, Dental Office Construction

Why Winter Is the Best Time to Plan Your Construction Project

Posted by Cory Sursely on Tue, Jan 27, 2015 @ 02:20 PM

BidOther than taking time to prepare a plan when the weather is poor for construction (so you can be ready when the weather is conducive for construction) there are additional benefits to contact your design/builder or general contractor in the winter.  Let me clarify that the following explanation works best when applied in Michigan and other cold winter states.  

Better Bids

It’s now January and we have at least 3 – 4 months before the weather is ideal for new construction.  So, suffice it to say, there’s typically less construction happening in the winter resulting in more supply and less demand.  Therefore, if you can get your design completed and solicit sub-contractor bids at this time, there will likely be more flexibility to get a competitive price from a larger selection of sub-contracting companies.  Right now, the pool of sub-contractors is larger because they’re only starting to fill their schedules for spring and summer.  More bidders means more competition and competitive pricing.  As we get closer to spring, schedules fill up and the result is either fewer bidders or bidders who aren’t as motivated because they already have a decent work load or they are busy and don’t have time to offer their best price.  The same holds true, typically, with materials and suppliers.

As we discussed in our blog “Ample Time Gets Better Bids”, when a sub-contractor has sufficient time to run their numbers, they provide an accurate and uninflated budget.  Otherwise, if they don’t have adequate time, then they’re more likely to round up, or inflate their price.  This isn’t to penalize the customer, but to make sure that they cover their costs to perform the service, and with inadequate time it sometimes is an educated guess. Therefore, allowing more time will likely result in a more accurate price that will affect your bottom line.

We would advise that getting bids when the pool is large will result in getting the best value for your budget because the cream of the crop will fill their schedules quickly and may not be available or motivated to bid competitively during the heat of construction season.

Design Time

Depending on the size of your building, design can take four months or more to be finalized.  The complexity or jurisdiction that it’s in can make it longer to get through approvals, not to mention if there are revisions made to the plans.  We know it’s daunting to sign off on something that a business owner has to live with for the next 25 to 50 years.  Owners should keep the design duration in mind while also allowing for sufficient time for bidding as we mentioned above.

If you must start your planning in the spring or summer, we will still seek out the best value, just as we do in the winter.  However, we have now shared with you that your budget will likely be lower if you do your planning in the winter when the pool is bigger and there is more time for estimating.  Now is the time to take advantage of cost saving measures and we will have you ready to break ground when the weather turns.

Inquire Here

Tags: Design/Build, the Wolgast Way, Scheduling, Financing Construction, Design, Good for Business

SBA 504: Funding Business Growth with Less Capital

Posted by Cory Sursely on Fri, Jun 27, 2014 @ 11:46 AM

Funding Construction with SBA 504

Business GrowthThis blog is intended for small business owners who are looking to grow their business.  Do you have a net worth less than $15M and an average net income less than $5M over the past 2 years?  Do you own your building or want to own your building?  Are you still with me?  If so, there’s a lower risk way to fund your business growth, and the best part is that it’s meant to keep capital in your business so that you can support economic growth in your community.

In one of our earlier blogs, we shared with you details of the Small Business Association’s 504 loan in “Easy Financing for Small Business Growth in Michigan”.  This program works well for small businesses who are growing, but don’t have a lot of working capital to expend on real estate, improvements or equipment.  Being able to finance 80-90% of the cost couldn’t be a better deal for these companies.

For those business owners that qualify, they can obtain a loan for up to $5M for tangible purchases such as real estate, equipment or property improvements that lead to job creation.  The program’s benchmark is for every $65,000 loaned it will create or retain one job (www.sba.gov).

The loan requirements include 10% down by the business owner, 40% low interest loan by the SBA’s Certified Development Company (CDC), and then 50% from an approved financial institution.  The CDC loan maturity terms are for 10 or 20 years for a fixed fee payment including current market rates for U.S. Treasury issues plus approximately 3% in fees.  It is still a nominal rate spanning a longer term than the traditional bank loan.

In dealing with our commercial construction clients who have considered the program, we have learned more about the SBA 504 and why some choose to use it or not.  First of all, the SBA has other loan options that it offers, but the 504 was implemented to be a faster loan process taking only two weeks or less for approval.  The paperwork and approval time is typically longer for their other loans, such as General Small Business Loans, Microloans, and Disaster Loans.

Also, the SBA 504 is set up to offer a low interest rate and a fixed monthly fee for the duration of the loan, either 10 or 20 years.  Whereas a traditional bank loan “resets” every 5 years and the interest rate always increases at that time, so you’ll likely pay more every five years. 

Finally, some banks are less willing to engage a 504 loan because there is significantly more paperwork involved than traditional commercial loans.  So it‘s a good idea to check with your financial institution to determine whether they offer the 504 loan option.  Some banks that are otherwise not willing to engage the 504 will do so for well established clients that they have a relationship with.

Either way, for those who qualify and need to keep capital in their business while growing, it’s in their best interest to check out the SBA 504.  To get more information on the programs specific to Michigan business owners, go to www.michigancdc.org.  

If Wolgast Corporation, progressive commercial contractor and design/builder, can be any assistance to you during this process, please feel free to contact us at 800-WOLGAST.

Tags: Financing Construction, Good for Business