Calvin Tamaye and his parents used the U.S. Small Business Administration's 504 Fixed Asset Loan Program to buy 15,000 square feet of land and an 8,500-square-foot building for their ACE Auto Glass business on Dillingham Boulevard.

Sixteen years later, the Tamayes now have seven ACE Auto Glass sites on O'ahu, Maui, the Big Island and Guam. And five of them have since been funded through 504 loans, including the Maui ACE that's currently under construction.

"It's a little more cumbersome than a conventional loan," said Calvin Tamaye, the company's vice president. "But it worked for us because we are in this business for the long term and we want to keep the property and be in the business."

The 504 loans are designed for small businesses looking to buy long-term capital assets, including land, buildings, heavy machinery and even boats — as long as they have a useful life of more than 10 years.

The main benefit is that businesses need to put down only 10 percent on a loan of $1.5 million. In some cases, such as when the borrower is a woman, minority or located in a rural area, the loan can be stretched to $2 million, according to David Perkins, president of the nonprofit Hawaii Economic Development Corporation that administers the loans through the SBA.

Perkins and Naomi Masuno of Central Pacific Bank will hold a two-hour seminar on Aug. 25 aimed at small businesses that may want more information on 504 loans.

"The problem these days is that everybody wants to buy something but the (commercial real estate) inventory is very low," Perkins said. "In that sense, they need us more than ever because whatever they find is going to be very pricey."

On a 504 loan, Perkins said, the lending bank, credit union or other institution will oversee the loan through the construction, and then HEDCO will pay down 40 percent of the financing.

The borrower needs to negotiate the terms of the bank's interest rate. But the interest on the 40 percent is fixed for the life of the loan, which this month is set at 6.4 percent.

"Although you have two separate loans, it's basically a 20-year bond available to anyone ... and 100 percent guaranteed by the U.S. government," Perkins said.

The program excludes companies whose net worth exceeds $7 million or whose after-tax profit is higher than an average of $2.5 million over the two previous years.

The borrower also cannot use the loan to buy or construct a building that will be leased, said Craig Swift, loan officer with the nonprofit Lokahi Pacific Rural Development Inc., on Maui, which also administers 504 loans.

Businesses that buy an existing building have to occupy at least 51 percent of it, Swift said. If they use the loan to construct a new building, they have to occupy 60 percent of it immediately and move into 80 percent of it over several years.

Keith Simon, president and owner of Menehune Water Co., borrowed $250,000 through a 504 loan eight years ago to purchase a condo warehouse on Kaua'i.

Simon now is trying to find a stand-alone warehouse or condo warehouse on Maui and would consider another 504 loan if he qualifies.

"I would unequivocally recommend it," Simon said. "I think it's something every entrepreneur and every small business owner should take a very serious look at."

Reach Dan Nakaso at dnakaso@honoluluadvertiser.com.