SBA offers commercial property financing options

Tim Whitney

If you’d like to purchase commercial real estate without a big cash outlay, a loan guaranteed by the U.S. Small Business Administration could be the way to go. The benefits are many and include improved cash flow and future equity gains.

While there are many choices available when it comes to commercial real estate financing, one option that’s often succeeded when others have failed is the 7(a) general small business loan guarantee — one of the more reliable and frequently used programs offered by the SBA. The 7(a) program allows you to purchase commercial property in use for your business.

Let’s consider some of the numbers involved. While most commercial banks require 25 percent to 30 percent as your initial investment, the SBA might require you to put as little as 10 percent down. Because the SBA is not a direct lender, you might be able to work with your own bank.

The SBA guarantees only a portion of the loan, meaning 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 program is $5 million. There is no minimum.

Furthermore, 7(a) loans can be amortized up to 25 years with fixed interest rates. Some of the most active SBA 7(a) lenders include Wells Fargo Bank, U.S. Bank and Timberline Bank.

Depending on your circumstances, the SBA 7(a) loan program might not fit your needs. The SBA also offers the 504 real estate and equipment loan guarantee program. The 504 program allows for the purchase of land or existing buildings and can even help cover the cost of such improvements as streets, utilities and landscaping.
You also can construct new facilities or renovate an existing building. Keep in mind that under the 504 program, you can’t use loan proceeds for working capital or real estate speculation.

Although the 7(a) and 504 SBA loan guarantee programs have some similarities, these programs have been set up for different purposes.

While these programs are subject to change from time to time, your SBA-approved lender can help guide you through the process. Why not call today and start down the path to acquiring your own commercial real estate?