An SBA commercial real estate loan can be an exceptional value for a small or medium-sized business.
SBA real estate loans are for “owner-occupied business real estate,” which means that the business you own and operate must “owner occupy” at least 51% of the square footage of a commercial property.
Most business owners know that an SBA commercial real estate loan exists, but many are are unaware of the true range of what can be financed and the possible benefits.
SBA Commercial Real Estate Loan Advantages
- 90% financing is the norm but many businesses can qualify for 100% commercial loans.
- The SBA 7a loan allows you to purchase both a business and a building with the same loan with just 10% down and if the real estate is 51% or more of the use of proceeds than the term and amortization can be 25 years. Additionally, there is flexibility with the source of the down payment, including the ability to borrow it. The key is that the lender feels you are putting in enough of your own cash, but borrowing all or part of the down payment is an option as are “investors,” gifts, retirement rollovers and seller held seconds.
- More flexible credit criteria: “Good” recent credit is a must, but some borrowers can get an SBA loan with a previous bankruptcy depending on the situation.
- SBA real estate loans offer a longer term and amortization than many conventional commercial loans but it is also possible that you could qualify for a low 25 year fixed SBA commercial property loan.
- 30 year terms and amortizations are also available for SBA 504 first mortgage loans and in the case of ground up or major construction projects, 32 year loans are available under the 504 with the first 2 years being interest only.
- Loan amounts from a few hundread thousand to $15 to $20 million are possible, so while these are considered “small business” real estate loans, much larger businesses and much larger buildings/properties are eligible.
- Working capital, equipment, current business debts, proprerty improvements & in some cases inventory can be added into the loans.
- Many lenders require just 1 year of sufficient cash flow to qualify, so if your business has been slowly ramping up profitability and your most recent tax year/tax return shows enough income to qualify then it might be possible to get a loan. Some lenders will also use “projections” to allow you to qualify assuming you are close enough to hitting the right metrics and if you can show that your move to a new space has a legitimate shot at improving your net profit.
- It is much easier to get an SBA loan for commercial real estate if you have been in business for a few years, but financing is available for startups with the right borrowers, management, business plan and projections. In fact, startups for certain types of properties are more the norm than the exception. For instance, loans for a new self-storage facility or a startup rv and boat storage facility or even an RV Park or campground are a very popular use of an SBA financing. And in the case of this kind of startup, there are lenders who will allow you to finance in not just all of the costs involved, but the first few years of payments during ramp up as well. See this link for more info on that: self storage construction.
- Allows you to finance building improvements as part of the purchase.
- Ability to get some “cash out” with a refinance.
Keep in mind that the above list pertains to SBA commercial real estate loan scenarios and does not include the additional benefits for non-commercial real estate transactions, including:
- Business purchase
- 100% business purchases – this can be done if an expansion of your existing business. (Harder to qualify for, but very real).
- “Online business” business acquisition – include FBA or Fullfillment By Amazon businesses
- Partner buyouts
- “Recapitalization” of existing businesses
All of the above are possible with an SBA loan but with a shorter term and amortization than an SBA real estate loan – in this case, usually 10 years.
SBA Real Estate Loan
I will be adding more to this post shortly, but get in touch if you have any questions as this stuff can be complicated:
jking (at) green commercial capital (dot) com
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