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What CRE Owners Need to Know About SBA Loan Programs

If you’re a small business owner of commercial real estate that has exhausted all the conventional options and still lack the capital needed to succeed or scale to the next level…Grab a pen and paper!

By working with banks and private lenders, the (SBA) Small Business Administration offers multiple programs to assist small business owners 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. 

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

Loan Maturity:

  • 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.

Interest Rates:

  • CDC portion is fixed in the high 2%s
  • Bank rate portion is blended

Loan Maturity:

  • 25 years – real estate acquisition/construction
  • 20/25 years – CDC portion
  • 10/25 years – Bank portion

Fees:

  • 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 small business loan offerings 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 small business owners 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 CRE loan for your business plan.

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