Does the SBA offer commercial real estate loans?

Stu Little
woman searching for sba commercial real estate loans
Published on September 19, 2022

Everything you need to know about SBA commercial real estate loans, from the 504 loan to the 7(a) loan.

If you’ve clicked on this blog, you’re wondering if the Small Business Association, known as the SBA, offers commercial real estate loans. The short answer to that question is yes! The SBA provides commercial real estate loans. 

The long answer is what we’ve written below. If you’d like to learn about the different commercial real estate loans the SBA offers, you’ve come to the right place. We’ll explain all the various options below, how they might benefit your business, and how to apply for the loan if you think it’s a good fit. 

What Commercial Real Estate Loans Does the SBA Offer?

You can get two loan options through the SBA for real estate. We’ll discuss each one in further detail below, but the two you can get are the SBA 504 Loan and the SBA 7(a) Loan. Each has different benefits and complications, so it’s essential to consider both before deciding if one is better over the other for your business. 

What is the SBA 504 Loan?

The SBA focuses its 504 loans on helping small businesses purchase real estate and other fixed assets. What makes the SBA 504 loan different from the 7(a) option is that the 504 works with Certified Development Companies (CDC). To get a 504 loan, a CDC business must back your business. Once you do that, you can access the $5 million loan that runs for 20 years if you’re purchasing real estate. 

There is a long list of requirements your business must meet to qualify, such as having a business net worth of $15 million or less and meeting the SBA business size requirements. You must also not be qualified to receive any other type of loan.

With the 504 loans, you’ll pay fees, including an upfront guarantee fee of 0.50%. They also have an annual service fee, 0.2475% of the outstanding balance, and lender-specific fees. The interest rate for this type of loan is usually around three percent. 

Read more about the SBA 504 Loan

What is the SBA 7(a) Loan?

The SBA 7(a) loan differs from the SBA 504 loan. For starters, you don’t have to use an SBA 7(a) loan just for real estate. You can also use it for: 

  • Acquiring inventory
  • Improving buildings 
  • Providing working capital
  • Purchasing equipment
  • Refinancing existing debt
  • Starting, expanding, or buying a business 

Regardless of what you use the loan for, you can receive up to $5 million and have up to 25 years to pay it back. This type of loan requires a higher down payment of around ten to 20 percent, and the interest rates range from seven to 9.5%. To qualify for the loan, you need a credit score of at least 650 and have been in your business for at least two years. 

Why Should You Get the SBA 504 Loan?

The SBA 504 loan is best for those looking for more than the SBA 7(a) loan provides. While both types of loans have the same maximum guaranteed portions, you can achieve more from your loan depending on the CDC you partner with. They can also provide you with additional funds.

This loan is not best for those who need quick access to money, however, and for those who would prefer to work alone with their loans. But you pay fewer fees, fixed interest rates, and down payment.

So, if you have less money to spend upfront and don’t want to gather as much interest, get the SBA 504 loan. 

Why Should You Get the SBA 7(a) Loan?

You’ll want the SBA 7(a) loan if you’d like a more extended period to pay back your loan. However, you’ll also need to pay a larger down payment than the SBA 504 and more considerable fees. It’s best for those who have goals for the loan that isn’t specific to just real estate since there are fewer requirements you have to meet to be approved. 

So, if you’d like to use your loan for multiple things besides just purchasing real estate and don’t mind paying more upfront to receive more money, get the SBA 7(a) loan.

Bottom Line: Pick the Best Financing Option for your Business’s Future 

If neither the SBA 504 nor the 7(a) loan sounds like an excellent option for your business, that’s okay. There are several other opportunities you can partake in to help achieve your goal of owning your own office or location. After all, having real estate for your business can open incredible doors for your products and sales. It allows you to connect deeper with your community and customers, provides marketing, and increases sales, to name a few benefits. 

If you’d like to avoid the interest rates and application process of getting a loan, consider another option. The lease-to-own model is an example that many businesses are taking advantage of. You accomplish owning your dream business location without having to front an expensive down payment.

At withco, we love helping small businesses achieve their dreams of owning real estate through with our lease-to-own partnership. Lease-to-own let’s you earn a down payment over time, so you don’t have to front the cash needed for 10% down on a mortgage. Want to learn more? Click the link below! 

Interested in lease-to-own?

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