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The Complete Guide to SBA Real Estate Loans

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Using a loan to purchase real estate is certainly a common practice. That’s certainly true for business owners, who often use loans to purchase building space or expand an existing space. One organization worth looking at for real estate loans is the Small Business Administration.

The SBA offers two loans that be used for real estate-related expenses: the CDC/504 loan program and the SBA 7(a) loan program. Both SBA real estate loans are tough to get in terms of the qualifications you’ll need and the documentation and paperwork you’ll need to provide, but the competitive interest rates and long-term lengths can make it well worth the effort.

Fundamentals of SBA real estate loans

Small businesses hoping to grow by building additional facilities, adding to their current structure, or purchasing fixtures or equipment should consider applying for the SBA’s CDC 504 or 7(a) loans. As with all of its loans, the SBA doesn’t actually lend the money itself, but partners with banks, credit unions and community organizations to provide the funding. Because the SBA guarantees a percentage of the loan, lenders may be more likely to take a risk on the borrower. The SBA agrees to repay the lender that portion of the loan if the borrower defaults and the lender can’t get the money back from the borrower.

CDC/504 loan program

These loans are provided through Certified Development Companies (CDC), which are nonprofit corporations, licensed by the SBA, that help economic development.

Typical SBA 504 loan rates and terms

Depending on the type of business, the maximum amount you can borrow ranges from $5 million to $5.5 million. These are fixed rate loans with a term of 10 or 20 years.

The CDC covers 40 percent of the loan amount, a private lender must cover up to 50 percent of the loan, and the borrower must contribute at least 10 percent.

What you can use an SBA 504 loan for

These loans are designed to help small businesses expand or modernize. Specifically, they may be used for the following:

  • Purchasing existing buildings
  • Purchasing land and land improvements, including grading, street improvements, utilities, parking lots and landscaping
  • Construction of new facilities or modernizing, renovating or converting existing facilities
  • Purchasing long-term machinery
  • Refinancing of debt in connection with an expansion of the business through new or renovated facilities or equipment

You can’t use this loan for working capital, to buy inventory or to refinance, consolidate or repay debt.

Loan requirements

To receive a 504 loan, you must run a for-profit business that does not exceed $15 million in tangible net worth and doesn’t have an average net income of over $5 million for the past two years. You will likely need to have been in business for two years, have yearly revenues of at least $50,000 and have a personal credit score of 680 and above.

In order to receive any SBA loan, your business must first be turned down for private financing by a bank or financial institution. If your company can get a loan on its own, the SBA is not allowed to guarantee a loan for your business.

With the 504 loan, a private lender must agree to cover up to 50 percent of the loan. A certified Development Company will then pick up 40 percent of the loan, and the borrower must contribute at least 10 percent.

The required down payment is based on several factors. It is typically 10 percent for an established business and 15 percent for a startup or special-use facility. That figure rises to 20 percent if the business is both a startup and a special-use company.

The loan application process will require the business to present at least four financial statements, spelling out your company’s cash flow, income and balance sheet, and the owner’s personal financial statement. Additionally, official SBA forms must be completed. Documentation must also include a statement of purpose for the loan and a business plan.

The applicant must be prepared to answer a number of questions, including:

  • What is the purpose of the loan?
  • How much money are you requesting?
  • When and how long will you need the funding?
  • How will you repay the loan?
  • What collateral do you have that can secure the loan?
  • Are you willing and able to provide a personal guarantee?

You will also need to meet any requirements of the lender you choose. Visit the SBA website for a checklist of requirements to be sure you provide all the paperwork that you need. This will speed up the loan process.

The SBA has district offices in every state and more than 900 Small Business Development Centers that can help you apply for an SBA loan. You can also get advice from SCORE, a nonprofit SBA partner whose volunteers provide small business advice for free.


Need business funding? Learn more about small business loans here.

SBA 7(a) real estate loan rates and terms

These loans offer a reduced guarantee fee for veterans. In addition, the SBA Express offers no guarantee fee for businesses that are owned and controlled by a veteran or service-disabled veteran, active duty military member, reservationist or National Guard member.

The advantage to the lender is that the SBA offers an 85% guaranty for loans of $150,000 or less and a 75% guaranty for loans greater than $150,000 up to a $3.75 million maximum guaranty.

What you can use an SBA 7(a) real estate loan for

The 7(a) loan program can be used for:

  • Expansion
  • Renovation
  • New construction
  • Purchase of land or buildings
  • Purchase of equipment and fixtures
  • Leasehold improvements
  • Working capital
  • To refinance debt for compelling reasons
  • Seasonal line of credit
  • Inventory
  • Starting a business

Loan requirements

To be approved for an SBA loan, you will need two years in business operation and have yearly revenues of at least $50,000. You also will have a better shot with a credit score of 680 and above. Most 7(a) loans have a maximum dollar amount of $5 million. Two offshoots of this program, the SBA Express loan and the SBA Export Express loan, have maximum loan amounts of $350,000 and $500,000, respectively.

In order to acquire a 7(a) loan you must own a for-profit business which is engaged in or proposes to do business in the United States or its territories. The owner must have a reasonable amount of equity to invest. All alternative financial resources, including personal assets, must be exhausted before seeking the loan.

A wide variety of businesses are eligible for this type of loan, including franchises, unless the franchisor retains power to control operations.

Before applying for this loan, you should also visit the SBA website for a checklist of requirements to be sure you provide all the paperwork that you need. This will speed up the loan process. You will also need to locate a lender. Your local SBA District Office can provide referrals.

The pros and cons of SBA real estate loans

Because the SBA provides a guarantee for lenders with its real estate loans, lenders are more likely to offer loans to small businesses or entrepreneurs who might not qualify for a traditional loan. This offers a boost to numerous entrepreneurs, owners of startups, minorities and others. Here some of the other pros and cons of SBA real estate loans.


  • Longer terms. The maximum maturities for SBA loans are 25 years for real estate, 10 years for equipment and 10 years for working capital or inventory.
  • Interest rates, which can be fixed or variable, are negotiated between the borrower and the lender, but they are subject to SBA maximums, which are connected to the prime rate the LIBOR rate or an optional peg rate.
  • Although a down payment is required, it is often lower than that required by other lenders.
  • For some SBA loans, no collateral is required.
  • With a 7(a) loan, there’s no prepayment penalty, meaning you won’t be charged a fee if you pay off the loan early.
  • There are no balloon payments with either the CDC/504 or 7(a) SBA real estate loan programs.
  • The SBA offers counseling and education services, which can help owners to run their businesses more efficiently and successfully.


  • Borrowers must have equity to invest to secure an SBA loan
  • The application process is lengthy and arduous
  • Although SBA interest rates are reasonable, they are usually higher than from banks.
  • The SBA requires a very detailed business plan and good credit.

Tips to apply for an SBA real estate loan

The first step in soliciting an SBA real estate loan is to prepare a business case so the SBA will know that your company is on solid footing. This will be a summary of how much you want to borrow, how you plan to use the money, and biographies for you and your management team. The SBA wants borrowers to also prepare financial statements detailing revenue, expenses and profits. The point of this exercise is to show that your team knows how to run a business and that your company is fiscally solid.

You should also determine how much your business is worth and prepare a business forecast showing how the future looks — including projected revenue and expenses.

The bottom line

If you’ve been turned down for a real estate loan from a traditional lender, consider looking at the SBA real estate loans. They offer reasonable interest rates and long repayment terms. Just be prepared for the process to take some time.


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