Small Business Administration (SBA) loans can be a great financing solution for small business owners looking to purchase or refinance owner-occupied commercial real estate.

In this article, we’ll dive into what SBA owner occupied commercial real estate is, the benefits it offers, the requirements to qualify, the key features to understand, and the best-suited businesses and industries for this type of financing. We’ll also discuss Equire’s financing solutions, and answer some frequently asked questions about SBA owner occupied commercial real estate loans.

What is a SBA Commercial Real Estate Loan?

SBA commercial real estate loans are a popular option for small business owners looking to purchase or refinance real estate that they will use for their own business operations. The program is a partnership between the SBA, Certified Development Companies (CDCs), and private sector lenders, offering long-term, fixed-rate financing to small businesses.

The primary goal of the SBA 504 loan program is to help small businesses acquire, construct, or improve commercial real estate, as well as finance other major fixed assets such as machinery and equipment. These loans are intended for owner-occupied properties, where the business must occupy at least 51% of the building.

The SBA offers several loan programs to help small business owners finance commercial real estate, including the SBA 7(a) and SBA 504 loan programs.

• SBA 7(a) loans are a type of general-purpose loan that can be used for a wide range of business purposes, including working capital, inventory, equipment, and real estate. The maximum loan amount for SBA 7(a) commercial real estate financing is $5 million, and the loan term can range from 7 to 25 years, depending on the purpose of the loan.
  In the SBA 7(a) loan program, loans are provided by SBA-approved lenders, such as banks and other financial institutions. The SBA guarantees a portion of the loan, typically between 50% and 85%, depending on the loan size and type. This guarantee reduces the risk for the lender, making it more likely for small businesses to secure financing.
• SBA 504 loans are specifically designed for the purchase, construction, or renovation of owner-occupied commercial real estate or long-term machinery and equipment. These loans are typically used for larger projects, and the SBA 504 loan program provides up to 40% of the total project cost, with the remainder being financed by a bank or other lender. The maximum loan amount for SBA 504 loans is $5.5 million, and the loan term can range from 10 to 20 years for the real estate portion of the loan and up to 10 years for the equipment portion.
  The structure for SBA 504 loans consist of three parts: a loan from a certified development company (CDC) for up to 40% of the total project cost, a loan from a third-party lender (such as a bank) for at least 50% of the project cost, and a borrower contribution of at least 10%. This structure allows small businesses to access larger amounts of capital while minimizing risk for the participating lenders.

What SBA Owner Occupied Commercial Real Estate Offers

SBA owner occupied commercial real estate offers several benefits to small business owners, including:

1. Lower down payments: SBA 504 loans offer lower down payments than conventional loans, which can be as low as 10% of the property value, making it easier for small business owners to purchase or refinance commercial real estate, especially those with limited funds or cash flow.
2. Long-term financing: SBA 504 loans offer long-term financing, up to 25 years for real estate, which can help small business owners manage their cash flow and reduce their monthly payments.
3. Fixed interest rates: SBA 504 loans offer fixed interest rates, which means that the interest rate will remain the same throughout the life of the loan, helping businesses better manage their finances and plan for the future.
4. Access to capital: SBA 504 loans provide small business owners with access to capital that they may not be able to get through traditional financing options. Because these loans are partially guaranteed by the SBA, lenders are often more willing to extend credit to businesses that might not qualify for traditional financing otherwise.

In summary, SBA commercial real estate loans are a great financing option for businesses looking to finance owner-occupied commercial real estate. With a low down payment requirement, long repayment terms, fixed interest rates, and the backing of the SBA, these loans can help businesses achieve their growth goals and take their operations to the next level.

Eligibility

To qualify for SBA owner occupied commercial real estate, small business owners must meet certain requirements, including:

1. The property must be at least 51% owner-occupied by the small business.
2. The small business must be a for-profit entity.
3. The small business must meet the SBA’s size standards.
4. The small business must demonstrate the ability to repay the loan.
5. The small business must have a tangible net worth of less than $15 million and an average net income of less than $5 million after taxes for the preceding two years.

Understanding the Key Features of SBA Owner Occupied Commercial Real Estate

• Interest Rates

SBA 504 loans offer fixed interest rates, which means that the interest rate will remain the same throughout the life of the loan. The interest rates for SBA 504 commercial real estate loans are typically lower than those offered by traditional commercial real estate loans.

• Terms

SBA 504 loans offer longer repayment terms than traditional commercial real estate loans, with terms up to 25 years for real estate. This can help small business owners manage their cash flow and reduce their monthly payments.

• Loan Amount

SBA 504 loans can provide financing for up to 90% of the total project cost, with loan amounts up to $5.5 million for most small businesses.

Businesses and Industries Best Suited for SBA 504 loans

SBA 504 loans are best suited for businesses that are looking to finance owner-occupied commercial real estate. Typically, businesses that are well-established, profitable, and have a strong credit history are the best candidates for SBA 504 loans. However, newer businesses with a solid business plan and strong financials may also be eligible.

One important consideration for businesses seeking SBA 504 loans is the size of the project. These loans are best suited for larger projects, with financing needs of $500,000 or more. Smaller projects may be better suited for other SBA loan programs, such as the SBA 7(a) loan program.

Considering a SBA Commercial Real Estate Loan?

Getting approved for SBA Owner Occupied Commercial Real Estate loans can be a rigorous process as the SBA has strict eligibility requirements that must be met. However, if a business meets the requirements and has a solid business plan, it is possible to get approved for an SBA loan. The process can take longer than traditional loans due to the additional documentation and underwriting required by the SBA. Additionally, lenders may have their own underwriting standards on top of the SBA’s requirements.

Lenders who specialize in SBA loans can help business owners understand the eligibility requirements, prepare the necessary documentation, and navigate the application process. They can also help businesses evaluate their financial situation and determine if an SBA loan is the best financing option for their needs.

How Equire Helps Businesses Achieve Their Financing Goals

Equire is a leading financial solutions provider, helping businesses secure the financing they need to fuel growth. One of the areas we have particular expertise is in helping businesses secure SBA loans. SBA loans, including the SBA 7(a) and SBA 504 loans, are backed by the US Small Business Administration and provide businesses with access to low-interest, long-term financing. However, the application process for these loans can be complex, and many businesses struggle to navigate the process on their own.

Our financial experts understand the intricacies of the SBA loan application process and have experience guiding businesses through every step of the way. From determining eligibility and selecting the right loan product to completing the application and securing funding, Equire provides businesses with the support they need to successfully obtain an SBA loan.

Frequently Asked Questions About SBA 504 Commercial Real Estate Loans