SBA 504 Blog

SBA Loan Requirements & Other Useful Commercial Loan Information

SBA 504 & 7a Loans, Green Commercial Loan Info & An Occasional Burst of Insight

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Mixed Use Property Loans

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SBA Loans For Mixed Use Properties

Mixed use properties include both commercial and residential space and both the SBA 504 and the SBA 7a program allow low or no down payment loans for businesses that occupy at least 51% of the “net rentable square footage”  of the building.  (In some cases basements and even outdoor space can be counted in the total square footage).

100% financing is possible with the SBA 7a with some lenders and the 504 requires at least a 10% down payment or equity injection.  See the following post for more info on using an SBA loan to buy a commercial property with no down payment: 100% commercial real estate financing and keep in mind that the SBA is flexible re: how you can come up with a down payment.

Conventional Loans for Mixed Use Property

Loans for mixed use property typically require a lot of equity or a large down payment of 25% to 30% and there are some excellent conventional lenders that offer that type of financing (including some that still do stated income loans), but if you own a business, have good credit and your business has a track record of solid cash flow then you might qualify for an SBA loan that would allow you get 90% to 100% financing for a mixed use property.

Your Business Must Need the Space

The SBA loan programs are fairly unique is that most commercial loans require anywhere from 20% to 35% down to get attractive terms for almost any type of commercial property.

The primary difference between an SBA loan and a tradtional commercial loan for mixed use property is that SBA loans are NOT for real estate investors, they are purely for business owners who need slightly more than half of the building for their business operations.

SBA Definition of Owner Occupied Space/Net Rentable Sq Ft

Net Rentable Square Footage for the purpose of an SBA loan for mixed use property is defined by the Small Business Administration as:

“Rentable Property” is the total square footage of all buildings or facilities used for business operations excluding vertical penetrations (stairways, elevators, and mechanical areas that are designed to transfer people or services vertically between floors), and including common areas (lobbies, passageways, vestibules, and bathrooms).

“Rentable property” may also include exterior space (except parking areas) that is actively used in Borrower’s business operations. Examples of exterior space that is actively used in Borrower’s business operations include outdoor storage yards for general contractors, trucking companies and moving and storage companies or boat slips and docks for marinas.

Combined Commercial & Residential Property Loans

A very common, SBA-acceptable mixed use scenario would be a building or office condo with a retail business, restaurant, delicatessen, dry cleaner, laundromat, etc. on the first floor and an apartment or residential units upstairs.

Construction Financing for Mixed Use Property

In the case of ground up construction or major renovation that the occupant business must occupy at least 60% of the space initially AND you cannot use SBA guaranteed funds to build out space for a tenant, so practically speaking, a mixed-use property loan with residential or commercial tenants might be better suited to an existing building without much need for renovation.

Mixed Use Loans for Business With On-Site Manager

If the business is a type that requires an on-site manager who lives on the property, the residential space that the on-site manager occupies can also be counted towards the business’s 51% occupancy but the residential space cannot exceed 49% of the total property.

Typically the following scenarios would qualify for SBA financing:

  • a funeral home with living space for the funeral director and his or her family
  • a dentist who takes care of patient emergencies after normal business hours
  • a horse breeder who needs to be on premises 24/7 to take care of the horses

In these cases, lenders will typically count the residential square footage towards the business vs leased/tenant portion of the square footage for qualifying purposes.

More info: SBA 7a and SBA 504 Loans

 

SBA Loan Fees: Apply Now or Pay More

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SBA Loan Fee Waiver Set To Expire

If you are considering applying for an SBA 7a or 504 loan you need to apply NOW if you want to avoid paying the SBA loan fees because the fee waiver period expires Dec 31st.

Loans that are approved by a lender and issued an SBA Authorization prior to Dec 31st should get the fee waiver.  Those that miss out will pay more for their loan.

SBA 7a Loan Fees

Here is a calculation of SBA fees for 7a loan of $2,000,000 assuming a 75% SBA Guaranty.  Please note: SBA fees are paid on the “guaranteed portion” of the loan amount and the 75% Guaranty will be back in place in January.

3.5% on the guaranteed portion up to $1,000,000 or $35,000 ($1,000,000 x 3.5%)

3.75% on the guaranteed portion above $1,000,000 or $18,750 ($500,000 x 3.75%)

Total SBA Guaranty Fee = $53,750

SBA 504 Loan Fees

The SBA 504 fees that are currently waived are “the bank participation fee” of 0.5% and the certified development company (CDC) processing fee of 1.5% both of which can also add up to a sizeable amounts.

Keep in mind the fees are typically financed into the loan(s), but it is real money that can be saved if you have an “approvable” loan and you act quickly.  Lenders are either already inundated (or about to be) and December is a short month with the Holidays.