Commercial Real Estate SBA Loans

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Commercial Real Estate SBA Loans: 7(a) vs 504 vs Conventional

If you are buying a business or currently lease your business space, you might think about buying commercial real estate. There are several options for loans to buy commercial real estate.

Comparing loans to buy commercial real estate: SBA 7(a) loans vs. SBA 504 loans vs. conventional loans

The cheapest sources of financing to buy commercial real estate include SBA 7(a) loans, SBA 504 loans, and conventional loans. Here is a brief summary table highlighting some of the similarities and differences of SBA 7(a) loans vs. SBA 504 loans vs. conventional loans.

SBA 7(a) LoanSBA 504 LoanConventional Loan
Goodwill / Business PurchasesCan be used to buy a business or goodwillCannot be used to buy a business or goodwillCannot be used to buy a business or goodwill
Working CapitalCan be includedCannot be includedCannot be included
InventoryCan be includedCannot be includedCannot be included
Passive Income InvestmentsReal estate must be 51% owner-occupied; real estate cannot be considered a passive income investment (such as apartments, condos, stripmalls, etc)Real estate must be 51% owner-occupied; real estate cannot be considered a passive income investment (such as apartments, condos, stripmalls, etc)No restrictions
Down Payment– 0% for business expansions

– 5% for business and real estate acquisitions

– 10% for startups

Depends on the type of property and whether new or existing.

– 10% for existing non-limited or non-special purpose property

– 15% for new, non-limited or non-special purpose property

– 15% for existing limited or special purpose properties

– 20% for new limited or special purpose properties

*limited or special purpose properties include car washes, gas stations, hotels, motels, hospitals, nursing homes, assisted living facilities, marinas, and farms

25-30%
Structure0-10% down

90-100% SBA 7(a) loan

Structure must include two different loans: one from the CDC and one from a lender.

10-20% down

30-40% SBA 504 loan from CDC

50% conventional loan from lender (minimum)

25-30% down

70-75% conventional loan

Maximum Loan Amount$5,000,000 SBA 7(a) loan limit

– No limit on additional conventional loan from lender

$5,000,000 SBA 504 loan limit from CDC

– No limit on conventional loan from lender (but lender’s loan must cover at least 50% of total project cost)

No limit
Interest Rate – 5-7%

– Fixed or variable rate

– 504 portion: fixed rate, 4-5%

– conventional loan portion: fixed or variable rate, 5-10%

– 5-10%

– Fixed or variable rate

Loan Term25 year term and amortization– 504 portion: 20 year term and amortization

– conventional loan portion: 10 year term with 15-20 year amortization and balloon payment

5-10 year term with 15-25 year amortization and balloon payment
Net Worth and Credit Score RequirementsEasiest to qualify forSecond easiest to quality forHardest to qualify for

Deciding whether to lease or buy commercial real estate

  1. If you are an existing business owner who currently leases their business space, you might want to consider replacing your lease payment with a loan payment; this will allow you to spend money to own the real estate, rather than rent it.

Existing business owners can estimate their borrowing limit here by adding their monthly lease payment to the “Discretionary Business Cash Flow”

Commercial Real Estate Calculator Based on Cash Flow

If you are buying a business with option to purchase the real estate, you’ll want to look at both options to determine what makes the most sense.

With an SBA 7(a) loan, if you do not include the real estate purchase in your loan, your loan term will be 10 years. You will make monthly loan payments to purchase the business plus monthly lease payments to lease the real estate

On the other hand, if you do include the real estate purchase in your business acquisition loan, your term can be up to 25 years; this longer term can lower your monthly loan payments. You will make monthly loan payments to purchase the business and the real estate, and will not have a lease payment to make.

SBA 7(a) LoanBusiness Acquisition without Real EstateBusiness Acquisition with Real Estate
Maximum Term10 years25 years
Monthly PaymentLoan payment to buy business plus rent payment to lease real estateLoan payment to buy business and real estate (no lease payment)

You can estimate your business acquisition loan terms with and without real estate here:

SBA Commercial Real Estate Loan Calculator

In summary, an SBA 7(a) loan to buy commercial real estate may be your best financing option. Here’s why:

  • Long loan terms: up to 25 years
  • Low interest rates: YourEdge™ will assure that you receive the lowest interest rate
  • Low down payment: as low as 0% for business expansion and 5% for business acquisitions
  • Working capital and inventory included: make the changes you want to in order to grow your business through channels such as marketing, advertising, renovation, and hiring

YourEdge™ Online SBA Loan Application helps save borrowers money by getting them favorable terms including the lowest interest rates, longest loan terms, and lowest down payment. Clients have used an SBA loan for real estate in a number of ways:

  • Buying a business with real estate included
  • Expanding or relocating an existing business
  • Refinancing existing real estate debt. Use our Refinance Debt with SBA Loan Calculator to determine how much you can save by using an SBA loan to refinance business debt, including real estate loans.

See how you can make payments to own real estate, rather than make payments to lease real estate, and estimate your loan terms with our Complete SBA Loan Calculator.

A pre-qualification is a great way to get a headstart on your application and will help in your negotiations. There is no credit check required and you’ll receive your pre-qualification letter and borrowing estimate within 24 hours.

HOW DO I GET STARTED?

The best online SBA loan platform is YourEdge™ by YourSBA.com:

  • Get prequalified to buy a business within 24 hours
  • Start here with YourEdge™
  • Find out how much you may qualify for using our SBA Loan Calculator tools here.
  • Business acquisition loans from $350,000 to over $5 million.
  • 5x success rate of your bank
  • No fees
  • No credit check / No hard credit pull
  • No bank runaround
  • Online, streamlined application accepted by all of the most aggressive SBA lenders for competitive interest rates and a 95% success rate.
See if you qualify for an SBA loan by taking just a few minutes to complete the quick form here. The pre-approval process takes less than one day and does not require a hard credit pull.