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SBA Loans For Commercial Real Estate Explained

If you’re looking for a real estate loan for your business, don’t overlook how SBA commercial real estate loans can help you achieve your goals.

The Small Business Administration (SBA) offers a variety of loan programs that can be used for the purchase or refinancing of investment properties. While the terms and conditions of these loans vary, they all have one thing in common: they are designed to help small businesses succeed. If you are planning to take out an SBA loan, read the article to be aware of the amount of information required to apply. While it may be daunting, preparing everything you need in advance will help ensure a successful application.

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What are SBA loans?

SBA loans are backed by the small business administration and offer advantages like low down payments, long repayment terms, and competitive interest rates. They can be used for various purposes, including purchasing property, renovating an existing space, or refinancing existing debt. While SBA loans do have some stringent eligibility requirements, they offer a great way to finance commercial real estate for your business.

If you’re looking for an SBA loan to finance your real estate venture, you’ll likely be considering either an SBA CDC/504 Loan or an SBA 7a Loan. Here’s a quick rundown of each option to help you decide which one is right for you.

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SBA 504 Loan

What is SBA 504 Loan? Also known as ‘Certified Development Company’ loans, these are typically used to finance commercial real estate projects such as office buildings, warehouses, and manufacturing facilities. They can be used for both purchase and refinance transactions, and they typically have low down payment requirements and long repayment terms.

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SBA 7a Loan

SBA 7a Loans: These are the most popular type of SBA loan, and they can be used for a variety of purposes, including the purchase or refinance of commercial real estate. They generally have higher interest rates than SBA 504 Loans, but they also tend to have more flexible terms.

So, which type of loan is right for you? That depends on a number of factors, including the type of property you’re looking to purchase, your credit history, and your financial goals. Be sure to contact us to get tailored advice for your unique situation.

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SBA 504 Loan vs. SBA 7a Loan. What is the difference?

If you’re trying to decide between the SBA 504 and the 7(a) loan, it really comes down to the size of your project. 

The 504 loans are meant for larger projects, with a minimum loan amount of $125,000. 

On the other hand, there is no minimum loan amount for the 7(a) loan. The maximum SBA 504 loan amount is between $5-5.5 million. 

To qualify for $5.5 million, a business must meet certain conditions set by the SBA, most of which are at the discretion of the SBA. 

So, if you’re thinking about the SBA 504 versus the 7(a) loan, it really depends on the size of your project. If you’re looking for a large loan, then the 504 is the way to go. If you are not, then you might want to consider the 7(a) loan instead.

 CharacteristicsSBA 504 LoanSBA 7a Loan
Loan amountUp to $5 million Up to $5 million
Interest ratesFixed or variableFixed or variable (variable more common)
Repayment terms10, 20, or 25 yearsUp to 25 years
Down payment requirement20% or moreflexible 
FeesOver 1% of a loan amount, rolled into a loan2.75% of a loan amount, paid out of pocket

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SBA commercial real estate loan requirements

From start to finish, the process of applying for an SBA loan can take several weeks. But if you’re prepared with all the necessary documentation, you can increase your chances of a successful application and obtaining the financing your business needs.

In order to qualify for any type of SBA financing, including 504 and 7(a) loans), a business must first refer to an eligible industry. Some other requirements are the following:

  • The business should have the standards of a small business
  • The company should be a for-profit type, non-profits are not allowed
  • The company should be registered in the U.S.
  • The borrower should provide the cash flow documents proving the ability to repay the debt
  • The borrower should have investing experience 

It is also a good practice to submit your professional resume. This document is used to show lenders what makes you qualified to run your small business and how prepared you are to use your SBA loan successfully. This is the information that needs to be highlighted in your resume:

  1. Include a professional summary at the top of your resume that briefly describes your business experience and how it will help you succeed as a small business owner. 
  2. Add a work history section that details your previous jobs, including any relevant experience in management or entrepreneurship. 
  3. Highlight your skills and qualifications with a brief section that outlines your industry knowledge and any other areas of expertise that would be useful in running a small business. 

By taking the time to craft a well-rounded resume, you’ll give yourself the best possible chance of securing the financing you need to start or grow your business.

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1. What is SBA real estate loan down payment?

The down payment requirement for an SBA commercial real estate loan is generally 20% of the purchase price. In addition to the down payment, borrowers will also need to have 3-6 months of cash reserves to cover several months’ worth of mortgage payments, in case of a temporary loss of income.

2. Can I use an SBA loan for personal use?

No, you cannot use an SBA loan for personal use. These loans are specifically for small businesses and must be used for business-related purposes only. This includes expenses like start-up costs, inventory, equipment, working capital, and more. If you use the loan for personal expenses, you could be in violation of your loan agreement and may have to repay the loan in full immediately. So, if you’re looking for a loan to cover personal expenses, you should consider a different program. 

3. Can I get an SBA loan for a rental property?

The answer to this question is yes, you can get an SBA loan for rental property. When it comes to investment properties, the SBA’s 504 Loan Program is often a good option. This program provides long-term, fixed-rate financing for the purchase or refinances of commercial real estate. Loans are typically available for up to 40 years and can be used to finance properties such as office buildings, warehouses, and mixed-use properties. If you are interested in applying for an SBA loan for rental property, be sure to contact us for details.

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If you’re looking to finance a real estate or machinery-related purchase for your business, an SBA real estate loan may be your best option. SBA real estate loans offer flexible payment options and long repayment terms, making them an ideal financing solution for small businesses. 

Considering SBA loans for commercial real estate, you have two main options: the SBA 504 loan and the SBA 7(a) loan. Both programs can be used to purchase commercial property, but they differ in how they’re structured and what other purposes they can be used for.

So which loan is right for you? It depends on what your priorities are. If you want specifically to fund real estate, go with an SBA 504 loan. But if you’re looking for flexibility to use the funds for other business needs, an SBA 7(a) loan is a better choice.

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