In life, just as in business, there are series of steps that individuals ideally follow to success. One of the first steps on this ladder to financial success is real estate ownership, and buying a home is widely considered to be one of the most significant rungs.

For those who are considering acquiring a franchise or already own one, real estate ownership is also one of the critical steps toward reaching the ultimate potential for their business success.

By purchasing the commercial property of a franchise in addition to simply operating the franchise, business owners are able to take advantage of a significant investment opportunity with both short- and long-term benefits.

One of the best-kept secrets in commercial real estate ownership for franchisees is the Small Business Administration's 504 loan program, which is reserved exclusively for commercial real estate and equipment as well as the soft costs and closing costs of each particular project.

Last year the SBA made $7.5 billion available for such loans and, unlike the better known 7(a) working capital loan program, nearly $1.5 billion, or 24 percent of the funds, went unused.

Part of the reason for this is that property, construction and equipment financing are the core business of local commercial banks.

Even though banks and other private lenders are able to play a significant role in 504 loans by providing 50 percent of the total project costs in these financing packages, the lenders typically prefer to offer standard commercial loans to the most highly-qualified borrowers in order to maximize the financial institution's potential profits.

In addition, because of the popularity of SBA 7(a) program, many franchisees look exclusively to this source for real estate and equipment financing during initial capitalization, even though more competitive financing is readily available.

504 loans cover 90 percent of the total project cost, as opposed to the 70 to 80 percent offered with conventional commercial loans. In many cases, this lower down- payment requirement is the key differentiator for business owners, as it makes it possible for them to afford the initial capital outlay for their acquisition or construction project without disrupting their operations.

In addition, almost half of the loan is guaranteed by the SBA, and it is the least expensive financing option available in the commercial mortgage industry for small businesses.

The 504 loan program offers rates that are significantly lower than those of conventional loans and can be fixed for the duration of the 20 to 25-year terms. Business owners can reduce their initial capital outlay by as much as $1 million in some circumstances by leveraging the 90 percent loan-to-cost financing of the 504 loan program.

The ability to procure capital is even further enhanced with the 504 because it enables the borrower to include renovation, closing and other soft costs along with furniture, fixtures and equipment into the financing package.

For many franchises, the ability to include furniture, fixtures and equipment into this long-term financing package is critical to cash flow management and enables them to increase profitability.

By forgoing the 504 loan program and real estate ownership, franchisees are disregarding one of their very best options for preserving capital, improving cash flow and maximizing profits.

Business owners benefit initially from the lower down payment requirement, and as they reach retirement age, they are able to sell the business but retain and lease the real estate as a continuing source of income.

A look at the SBA 504 statistics for loans granted in 2006 shows a close parallel between the types of businesses taking advantage of the program and key franchising categories:

These loans are granted to almost any type of for-profit small- to mid-sized businesses in the U.S., with the exception of financial services providers, passive real estate investors, companies having a tangible business net worth greater than $7 million, or companies with net profits after taxes that averaged more than $2.5 million during the past two years.

As an SBA lending program, the 504 loan requires applicants to demonstrate job creation, export potential or other economic-development or public policy goals. The funds must be used for capital expenses, including land, buildings, construction and equipment.

Owner occupancy requirements are 51 percent of the total square footage for acquisition loans and 60 percent for new construction financing. In addition, multiple businesses may be able to jointly pool 504 financing if they meet occupancy requirements together.

SBA 504 loans feature very competitive fixed interest rates when compared with conventional financing - 6.5 percent (fixed for 20 years) as recently as June 2007. The resulting blended overall rate is often well below conventional loans.

In addition, borrowing from the SBA 504 program does not preclude franchise owners from also applying for funding from the 7(a) program for working capital, inventory and other needs

SBA 504 loans require the same amount of documentation and due diligence as ordinary commercial loans. Approval processes, too, are comparable to conventional loan processing.

In just over four years, Mercantile Commercial Capital has helped 165 businesses obtain SBA 504 loans with a value in excess of $225 million. These include franchises for Management Recruiters International in Tampa, Melting Pot in Orlando, and Culver's in Cedar Rapids, Iowa.

Gary King has owned the Management Recruiters of Tampa North franchise since 1989, leasing Class A office space. In 2002, he and his wife Gail purchased land and built the 4,500-square-foot King Professional Center, where his franchise is the primary occupant.

Just prior to closing the deal with conventional financing, the Kings discovered the SBA 504 loan program. They used the program and reduced their equity contribution from 25 percent to 10 percent, saving them more than $50,000 on the down payment at closing.

In addition, the low interest rate on the SBA 504 portion of the financing package actually enabled them to lower their monthly occupancy expenses and design the new space to their exact specifications.

The 504 loan program was crucial for Melting Pot franchisees Dale Wallace and Robert Frady, owners of Seminole Restaurants of Florida, with two Central Florida locations. The owners were able to purchase instead of rent a site best suited to give the restaurant its upscale, distinct identity that is consistent with the dining experience that it aspires to create.

The duo, who worked during college at the original Melting Pot, own and lease-back a separate unit in Gainesville, Florida.

Rich and Carol Kendall, owners of three Culver's restaurant franchises near Cedar Rapids, Iowa, drew upon previous real estate experience to make an ownership decision on all three restaurants.

A baby boomer couple, they entered the restaurant business following other successful careers. They believe that the combination of property ownership and 150 trained and enthusiastic employees gives them maximum control but also flexibility in planning.

Christopher G. Hurn is president and CEO of Mercantile Commercial Capital, LLC, one of the nation's leading providers of SBA 504 loans for small business. To contact Chris visit www.504Experts.com, call 866-622-4504 or e-mail info@mercantilecc.com.