SBA programs make it easier to finance commercial property

Tim Whitney
Tim Whitney

The opportunities for financing commercial real estate have improved dramatically over the last couple of years even as the cost of purchasing property has remained competitive. For those tired of making monthly lease payments that benefit someone else, it’s a great time to take the leap and buy or construct your own commercial buildings.

To accomplish your new goal, you’ll most likely need a commercial real estate broker with lots of market knowledge and a good loan with a low down payment.  This is where the U.S. Small Business Administration comes in. SBA loan guarantee programs help borrowers obtain financing without a big cash outlay.

There are many choices when it comes to financing, but one good option that’s available when others have failed is the SBA 7(a) program, one of the most popular loan guarantee programs offered by the federal agency. This program allows you to purchase a commercial property while requiring you to put as little as 10 percent down, less than the 20 percent to 30 percent down most commercial lenders require. Because the SBA isn’t a direct lender, you might be able to work with your own local bank to obtain financing. The SBA only guarantees a portion of the loan, which means the bank will still take on a certain amount of risk. 

In general, loans for $150,000 or less are guaranteed up to 85 percent, while loans exceeding $150,000 are guaranteed up to 75 percent. The maximum loan amount for this 7(a) program is $5 million, and there’s no minimum. Furthermore, 7(a) loans can be amortized up to 25 years with fixed interest rates.

The immediate and future benefits of SBA loan programs are many, including improved cash flow and future equity gains.

If the 7(a) program doesn’t fit your needs, the SBA also offers the 504 loan guarantee program that allows for the purchase of land and existing buildings and also can help cover the costs of such improvements as utilities and landscaping.  You can construct new facilities or renovate existing buildings. Keep in mind that under the 504 program, you can’t use the loan for working capital.

Although the 7(a) and 504 SBA loan guarantee programs have some similarities, these programs have been set up for different purposes. While the programs are subject to change from time to time, your lender can help guide you through the process.

Why not call today and start on the path to owning your own commercial real estate?


One Response to "SBA programs make it easier to finance commercial property"

  1. JerryChau   June 24, 2015 at 2:39 pm

    The SBA 504 program is much better than 7(a) for commercial buildings. It’s ideal for small-business owners to buy, build or rehabilitate commercial buildings up to around $12 million. And the interest rate is low and mostly fixed. 7(a) usually floats. The catch to 504 is that your business is required to create, or save jobs as a result of the financing transaction.

    The program provides up to financing 90 percent of the cost of owner-occupied
    small office buildings, warehouses, business condos and retail stores. Even
    restaurants, bowling alleys, skating rinks, franchises and more exotic uses can
    qualify if they meet SBA’s job-creation goal. But for specialized, single-purpose buildings, the total financing is limited to 85-percent of the cost. That means you would have to pony-up an additional five percent of the cost.

    Jerry Chautin
    Former entrepreneur, commercial real estate and business lender
    Currently business columnist, financial content provider, blogger
    SCORE certified business mentor, coach, counselor — SBA’s all volunteer, non-profit resource partner
    SBA’s 2006 National “Journalist of the Year”