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If you’re looking to start or grow your small business, one of the many advantages you have over other businesses is the possibility of getting an SBA loan. But what loan can you avail to invest in the property? How much loan can you get? What is the minimum eligibility?

 

These are a few questions that might have if you’re planning to take an SBA loan anytime sooner. This article goes into detail about what SBA financing for land purchase can and cannot do for you, so keep reading to learn more!

 

 What is an SBA Loan?

 

An SBA loan, or Small Business Administration loan, is a type of loan offered by the U.S. government that is intended for small businesses. These loans are often less expensive than commercial loans and have more lenient terms and conditions.

 

Any SBA loan cannot be used to purchase a rental or investment property. However, if you are looking to buy a commercial or office building for your business, there are two primary options through the SBA. Loans under the SBA 504 help to finance real estate and other assets, usually those which are fixed, whereas loans under the 7(a) are more general in nature.

 

What is an SBA 504 Loan?

 

In the event that you are looking to buy a piece of land and need financing, an SBA 504 Loan is a great option. These loans are only available from commercial lenders and are backed by the Small Business Administration (SBA). They usually carry low interest rates and long repayment periods with low down payment requirements.

 

It’s important to note that this type of loan can only be used on commercial real estate properties such as multifamily or retail space, not residential properties like single-family homes or condos.

 

An SBA 504 loan is arranged through banks and CDCs with SBA approval. Banks usually provide 40%-50% of a loan's funding, while CDCs provide 30%- 40% and you pay 10% as a down payment.

 

SBA 504 loan rates and terms

 

The SBA 504 loan program is a long-term, fixed rate, low-cost financing option. It can be used to purchase land and develop it or acquire an existing business with real estate. The maximum loan amount is $5 million. SBA 504 loans for real estate have repayment terms of 20 or 25 years.

 

SBA504 loans carry different interest rates due to different guarantees from the CDC and the bank. There will be a fixed interest rate on the CDC loan. Over the course of the loan, however, the interest rate on the bank portion may fluctuate.

 

SBA 504 loans: how can they be used?

 

An SBA504 loan can be used to grow your business in some unique ways that traditional financing options typically don’t allow you to do. Here are the ways an SBA 504loan can be used to help your business grow.

 

●      To buy real estate

●      For equipment purchases

●      To refinance an existing business debt

●      For Modernizing or renovating existing property

 

How to qualify for an SBA 504 loan?

If you’re wondering how to qualify for an SBA 504 loan, read on for a brief overview of this popular business loan program and its requirements.

 

●      Business should be operating in the USA.

●      Managing a business with a tangible net worth below $15 million.

●      The company's two-year average net income must be less than $5 million after taxes.

●      All company principals must provide personal histories to the SBA, including projections of operating cashflow.

●      Furthermore, at least 51% of the real estate acquired by the business must be used for business purposes, or60% for new construction.

 

What is an SBA 7(a) loan?

 

The SBA 7(a) loan program is another option for getting a real estate loan from the SBA. Generally, SBA 7(a) loans can be used for a variety of business purposes. The structure of these loans is simpler and the eligibility requirements are less strict than those for a 504 loan. A SBA 7(a) loan does not involve a CDC, so you will work directly with a bank or other private lender.

 

SBA 7(a) loan rates and terms

 

A maximum loan of $5 million is available under the SBA 7(a) loan program. The maximum repayment term for a 7(a) loan is 25 years for real estate purchases. In general, interest rates range between 7% and 9.5%, but they are subject to fluctuations in the economy. A down payment of 10% to 20% will also be required.

 

 SBA 7(a) loans: how can they be used?

 

SBA7a loans can be used for many different purposes, and are an excellent way to start or grow your business.

 

●      Business expansion, acquisition, or startup

●      Buying or building real estate

●      Refinancing existing business loans

●      Buying new equipment

 

 How to qualify for an SBA 7(a) loan

 

For Small Business Administration (SBA) 7(a) loans, you have to meet only a few requirements to get started. The base requirements include:

 

●      Business owners need a credit score of at least 650 to qualify for a loan.

●      To become a business owner, you must have at least two years of experience in the field and be profitable.

●      The property financed with a7(a) loan must be at least 51% owner-occupied.

 

Conclusion

Whether you are purchasing commercial real estate or making improvements on an existing business, the Small Business Administration guarantees loans for small businesses. This loan program is especially beneficial for business owners who cannot obtain loans through traditional lender channels. If you qualify for a loan guarantee through the SBA, you should consider this option before you goin another direction.