What CRE Owners Need to Know About SBA Loan Programs
By working with banks and private lenders, the (SBA) Small Business Administration offers multiple programs to assist borrowers who do not qualify for similar financing elsewhere. The SBA doesn’t lend money to businesses directly. Instead, it guarantees loans made by private-sector lenders.
Although the SBA was designed to help small business owners, many commercial real estate owners and investors can benefit from an SBA loan for a variety of projects including purchasing an existing commercial building, expanding a current commercial property or for ground-up construction.
There are multiple types of SBA loans — each with its own terms and conditions. The best SBA loan for you will depend on what you plan to use the funding for.
The two most popular SBA loan programs are 7(a) Standard Loan and 504 Loan. Here’s what you need to know, so you can determine if an SBA loan is right for you.
SBA 7(a) Standard Loan
Loan Use – The 7(a) Standard Loan can be used for a wide variety of business expenses including:
- buying a business
- working capital
- long-term heavy machinery or equipment
- acquiring land or real estate
- repairing existing capital
- refinancing debt
No collateral requirements; However, individual banks may set their own policy requirements.
Loan Amount – can be guaranteed in any amount up to $5,000,000
Interest Rates – fixed-rate or variable options available
- up to 10 years – business acquisition, equipment or working capital
- up to 25 years – real estate
Fees: based on the guaranteed loan amount and maturity; can be rolled into the overall loan.
SBA 504 Loan
Loan Use – The 504 Loan is used for a range of assets that promote business growth and job creation. These include the purchase or construction of:
- a building or land
- long-term heavy machinery, equipment, furniture
- improvements for existing facilities
Loan Amount – no limited amount; but portion secured from CDC is capped at $5,000,000
It’s important to note that unlike other SBA loan programs, the 504 loan is a partnership between a conventional bank lender, a Certified Development Company (CDC) and the borrower. A CDC is a regional nonprofit organization set up specifically to administer the 504 Loan Program.
- CDC portion is fixed in the high 2%s
- Bank rate portion is blended
- 25 years – real estate acquisition/construction
- 20/25 years – CDC portion
- 10/25 years – Bank portion
- Lender – 0.50% – 1%
- CDC – varies 2% – 3%
If you want to combine a business purchase with a real estate purchase and throw in some working capital, SBA 7a may be your option. That’s because 504 loans can’t be used to finance a business purchase, nor can they be used for working capital. SBA 504 is largely viewed as an economic development program. That means it’s big on business growth and job creation.
Knowing the differences between these popular SBA loan programs can help you secure the capital you need to achieve your business goals. Whichever you end up choosing, both the SBA 7a loan and 504 loan are excellent opportunities for CRE owners/investors searching for affordable financing. As a commercial real estate mortgage advisory firm, Progress Capital can help you evaluate the various financing options available and advise in choosing the right commercial loan for your CRE investments.