SBA Loans Real Estate

If you’re going to buy a new building or renovate the company’s current facility, you may have to take out a loan to cover the costs. We have reviewed several hundred lenders and loan programs and selected for small business owners the best commercial real-estate financing and loans on the market.

SBA 504 Loans are intended for small companies to fund the purchase of commercial property, machinery or equipment. The loan plan is a collaboration between the loan provider and CDC.

CDCs are not – for-profit organizations that foster economic growth in their communities through the US loan system. Small Business Authority (SBA). A local CDC is accessible via the SBA website. The loan is usually structured as follows: 50 percent of the total costs of the project are funded by a private investor and 40 percent of the total project cost is funded by the CDC and insured by SBA 10 percent of the total cost of the project is contributed by a small company. The SBA 504 loan funds can be used for other fixed assets (including soft costs that are not considered direct construction costs).

More specifically:

• Purchase of existing buildings
• Procurement of property and land development including leveling, construction of highways, drainage, car parks and landscaping
• New buildings or improvements, reconstruction or upgrading existing installations
• Long-term machinery
• The refinancing of the debt for the expansion of the company by new facilities
• SBA 504 Loan repayment terms are for a period of 10 to 20 years, and the interest rate is comparable to the average five to 10 year US market rate.
• Problems of the Treasury.
• As of November 2019, the rates were roughly 3.56 percent for 10-year loans and 3.92 percent for 20-year loans.

There are several lending options available if you need a small business loan.

The SBA 504 loan is the perfect option if you’re looking for a small business loan to purchase commercial property or large machines / equipment. Unless the goal is to acquire a business or receive working capital, the SBA 7A loan is probably better for you.

Learn more on expert advice about the right loan for your company

The SBA 504 loan would allow you to buy a house, fund a ground-up house, upgrade buildings, or buy heavy machinery and equipment.  7a Loan Proceeds may be used in order to buy short or long-term working capital, the existing company debt refinance, or the purchasing of furniture, installations and supplies.

Could you buy commercial property using a 7a loan?

Yes, it’s true. The 7a alternative, however, would be cheaper in terms of SBA guarantees and SBA fees. In fact, banks are not expected to fund the charges with the loan earnings, so the initial costs of 7a loans are significantly more costly.

The theory is this:

For projects in which the price of the land in conjunction with an occupant upgrade reaches $775,000— the gap in dollar costs is substantial. In this situation, the 504 loan fee was 1.2% of the overall loan, compared to 2.9% of the 7a loan.

Therefore, if the 7a loan is funded at a value credit of 90 percent (LTV), there is usually a liaison at home, in the business (UCC) or both. No debt on personal residences is expected for SBA 504 loans.

There are two major reasons that make this system typical for commercial real estate finance: small down payments and below-market fixed interest rates for a portion of the loan. In total, you would just have to pay 10% to get a 504 loan. In instance, most banks need commercial real estate loans down at least 20 to 25 percent. The 504 loans consist of two loans, each of which has a fixed interest rate. A bank is lending 50%, while the Certified Development Company (CDC) is lending the remaining 40%. The interest rates of the CDC loan are for the term of the loan and the existing interest rates are about 4.65 percent below the market. Bank loan interest rates are determined by your bank and are usually variable.

Another justification for trying out this loan program is that it is available to new and existing companies, but start-ups may need a higher down payment. Since such loans are funded by the SBA, even if you do not have a credit score of 720 or more, you may qualify. You would need to meet with a bank or credit union in your region in order to apply for a loan of 504. You must jointly send a request to the applicable CDC in your country.

Loan Use with USA Funding Pros

Such loans may be used for fixed assets and a variety of soft costs, including real estate. There are specific guidelines for how the funds can be used – borrowers can not use borrowing for working capital, inventory, restructuring or redemption of debts.

SBA Loans Real Estate or SBA Commercial Real Estate Loans are sometimes referred to as 504 loans, due to their reliance on fixed assets. A 504 loan may be used to purchase an existing building, property or property improvements, to build or renovate buildings, to buy long-term equipment, or to refinance construction or equipment-related debt. This proposal makes a 504 loan a perfect choice for loaning real estate. It’s important to note that SBA loans can’t be used to invest in real estate, but can be used to start a real estate business, like a brokerage or real estate fund.

Unfortunately, the protections that SBA loans provide comes at a price. In addition to being subject to high rates, applicants must have a high credit score and be able to show significant gain on their tax returns in order to apply. The approval process is also lengthy and requires the applicant to put up personal belongings as collateral.