SBA Loans: Purchasing Commercial Real Estate

No matter the size of your business, there are plenty of obstacles to overcome, but oftentimes it’s the small business owner who has the highest mountain to climb. Those who need to purchase business equipment or commercial real estate will do well to consider SBA loans from the U.S. Small Business Administration. Learn how an SBA loan works and the benefits of opting for one over a traditional commercial loan,

What They Are

Some of the biggest differences between an SBA loan and a traditional real estate loan include:

  • An SBA loan has a lower interest rate and down payment requirement
  • SBA loans don’t have balloon payments once the repayment term has ended
  • Borrowers don’t have to offer up collateral for an SBA loan

How to Qualify

Most of the standard financing qualifying requirements apply to an SBA loan, but there are a few extra to be aware of. These supplementary requirements include:

  • Entrepreneurs have to be able to sufficiently show how the proceeds of the loan will support regional policy or create job opportunities in the local community.
  • If the financing is needed to purchase equipment, there is a “shelf life” requirement, meaning that the pieces have to be useful for a specific number of years. For real estate, existing buildings have to be more than half occupied by the owner. Brand new buildings have an owner-occupancy requirement of at least 60 percent.
  • Applicants are required to have a net worth that’s less than $51 million and a median net income of less than $5 million (after taxes) for the past two years.

Loan Suppliers

One thing to bear in mind with SBA loans is that they aren’t actually offered by the SBA, only guaranteed by the administration in order to absorb some of the risk taken by the financial institution offering the loan. Banks, certified development companies (CDCs) and borrowers are the only three parties involved with an SBA loan.

How Much It Costs

Before applying for any loan, it is best that borrowers first check the latest interest rates. Because an SBA loan is combined with a bank loan and a CDC loan, there are two interest rates: one from the U.S. Treasury and the other from the bank.

Small business owners have more options than ever when it comes to getting their companies off of the ground. SBA loans make for a reliable and affordable source of financing that’s often preferable to traditional loans.

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