A Guide to SBA Real Estate Loans

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By Luke Babich Updated October 21, 2021


SBA real estate loans

Running your own small business means that you'll come up against all kinds of expenses— from payroll, inventory, machinery, and many others. Real estate is one of the biggest expenses you might have to contend with for your small business. After all, buying commercial space isn't necessarily cheap—nor is it always as easy as simply writing a check.

The Small Business Association (SBA) helps entrepreneurs get access to business loans for which they may not otherwise be a prime candidate. SBA real estate loans can be a great source of funding for small business owners who want to expand their operation. These loans can help you purchase a property to develop, or buy the real estate you need in order to expand your business.

Getting an SBA real estate loan isn't always easy, however. The SBA requests a ton of information about you and your business, which can be a bit daunting for some entrepreneurs. Here's what you need to know about the SBA real estate loan process, as well as a few tips on how to make your application stand out.

SBA Real Estate Loans: The Basics

The term SBA real estate loan can be a bit misleading. The SBA doesn't offer loans itself—rather, it partners with lenders who provide the funds to approved borrowers, and serves as guarantor for a large part of the loan. This means that lenders can provide loans to small business owners while mitigating the risk that they won't get their money back if the business goes under or can't make repayments.

There are a lot of different SBA loan options out there, of which real estate loans are only a subsection. There are two SBA commercial real estate loan types, each designed to fund different kinds of goals. The Certified Development Company (CDC)/504 Loan Program provides funding for real estate projects, such as purchasing or renovating commercial spaces, or buying equipment. The SBA 7(a) Loan Program is broader in scope, as it's designed to help fund general business development purchases.

Since both CDC/504 and 7(a) loans cover real estate purchases, you'll want to consider the big picture for your overall business financing before you pick the right one for you. If purchasing real estate or machinery are only subsections of your overall funding needs, you may want to opt for a 7(a) loan, which will let you apportion some of those funds for other business purposes.

How to Qualify for SBA Real Estate Loans

The SBA loan process is lengthy, especially compared to other term loan applications. You'll need to provide much more documentation about your company finances, as well as your own financial history. Here's what you need to have in order to put your best financial foot forward.

Fair Business Credit (or Better)

You don't have to have outstanding credit for an SBA loan, but it can't hurt. Most applicants with a credit score of 620 or better tend to have a better chance of getting approved. The better your score, the more favorable your terms and interest rate will be. Bear in mind that the SBA also wants to see that you have solid personal finances as well.

Detailed Financial Records

The SBA loves to see good record-keeping. Expect to hand over all your financial documents as part of the application process—profit and loss statements, bank records, invoices, you name it. Detailed record keeping is your friend here. The more you can provide, the stronger your application. You'll also need to demonstrate that your business is turning a profit, and give insights into your cash flow to help assure the SBA that they're putting their faith into the right partner.

A Business Plan

Your lenders want to know what you plan to do with their money. Seems fair enough, right? The same goes for the SBA. They want to understand what your company does, how it turns a profit, and the specifics behind why you want to borrow in the first place. Be sure to provide as detailed a business plan as possible to cast your company in the right light.

SBA Real Estate Loans: Pros and Cons

SBA loans get a ton of praise from most borrowers and lenders. After all, they open up a financing option that is otherwise pretty hard to access for most small business owners. As with any loan, however, there are pros and cons to consider.

We've covered the pros so far, and there are plenty of them: low interest rates, generous terms, and a wide range of loan amounts. There are some cons to consider as well, though, particularly if you need quick access to cash or have less than fantastic credit.

The SBA loan application process can take months—not because the actual approval process is any longer than it would be for most loans, but because you have to account for the time required to pull all of the required financial documents together. If you don't have that kind of timeline to work with, you might want to look at other real estate loan options. Also, if your credit disqualifies you from being a good candidate, you may not want to invest the time an SBA loan application requires.

SBA Real Estate Loans: In Summary

SBA real estate loans are a great option to help you fund the next phase of your business. They open doors to lending partners that would otherwise stay shut and can help you save a fortune on interest payments.

But these perks come at a premium: namely, your time and patience. Be sure that you're a likely candidate for an SBA real estate loan before putting yourself through the gauntlet.

But if you've checked off all the boxes, prioritize your SBA funding options above all others.

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Meredith Wood is the Editor-in-Chief at Fundera, an online marketplace for small business financial solutions. Specializing in financial advice for small business owners, Meredith is a current and past contributor to Yahoo!, Amex OPEN Forum, Fox Business, SCORE, AllBusiness and more.

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