Choosing an SBA 504 or SBA 7(a) loan to purchase commercial real estate is a smart solution for a business owner. There are many advantages such as lower interest rates and monthly payments, as well as lower down payment requirements with these programs. In order to acquire these loans business owners will still need good credit and operate a profitable business.

SBA 504 Loan Program:

The 504 loans are typically channeled through local Certified Development Companies (CDC's). These are non-profit partners who promote economic development in local communities around the nation. The SBA regulates and certifies these organizations. Businesses must be for-profit and operate in the United States, and must have tangible net worth less than $15 million to obtain these loans. Their net average income over the previous two years must be less than $5 million after federal income taxes. The maximum SBA/CDC 2nd portion is $5 million. Some manufacturing and SBA energy efficiency measures projects may receive up to $5.5 million.

Loans can be used for purchase or construction of a new facility, existing buildings or land, and long-term equipment and machinery can be included. Modernization or improvements are also a use of funds with this program. Unfortunately, this loan can not be used for working capital or inventory. Neither can it be used to refinance or consolidate debt. Borrowers are required to put down from 10-20% as a down payment. The amount of down payment is dependent on several factors, like time in business, special use property criteria, etc. Consult us for more details on your situation.

SBA 7(a) Loan 100% Financing Option:

In most cases 5-10% down payment is required for the 7(a) loans. However, many lenders are offering 100% SBA 7(a) commercial real estate financing to qualified borrowers. Typically, excellent business and personal credit is required, and collateral has to be pledged. The business has to have a positive cash flow history of at least 1.5 years, and the business is required to occupy at least 51% of the property. Although special use properties may considered on case-by-case basis, general and multi-use properties are easier to receive approval by most banks. The maximum SBA/CDC loan amount is $5 million.

The program also allows borrowers to receive 100% financing for new construction. However, there are a few stipulations. The business needs to have very strong financials and occupy at least 60% of the property once construction is completed.

Eligible properties may include:

1. Certain types of fast-food service restaurant buildings
2. Pharmacies
3. Auto Repair businesses
4. Office Buildings
5. Office Condos
6. Dental Offices, Medical Clinics,
7. And Others