The Small Business Administration has recently redefined its 504 loan program rules to permit small business owners to purchase short sale real estate using SBA funds. The loan program modifications would allow small business owners (defined as those whose businesses generate less than $5 million per year in revenue and employ fewer than 500 people) to form a holding company for the purpose of holding investment real estate. The SBA Loan Program has recently increased its guarantee to 90 percent from 85%.

The 504 loan program would allow small business owners to take advantage of low interest rates and easier qualification terms when purchasing real estate. There is no limit on the type of real estate that qualifies: residential, commercial, retail and other types of real estate would all be eligible for the loan program.

Beyond that, the modification to the rules of the SBA loan program underscore the role that the government expects short sales to play in the recovery of the real estate market. Most economists say that recovery won’t truly begin until the real estate market recovers. The government is doing what it can to make real estate purchases easier and more attractive for borrowers.

By incorporating short sale real estate purchases into your small business plan, you can reap the benefits of the real estate market when it truly begins to recover. Some signs indicate that the real estate market is beginning to recover now. Interest rates are beginning to rise, as are home prices. There are still great bargains to be had, but real estate investors are quite sensitive to price right now. If the price of real estate continues to climb without the true underpinnings of recovery in place, the short sale investor will have ample opportunity to build his stock in real estate, and the SBA’s 504 program may be an excellent vehicle with which to finance acquisitions.

Photo Credit: Shashi Bellamkonda, via Flickr