The Small Business Administration has been a part of the small business fabric in the US for many years. It offers loan programs to suit various small businesses at different stages of their development. It’s the ultimate financing alternative for small businesses that can’t find other business funding options.
The SBA has various loan programs that target diverse business needs ranging from building improvements, to acquiring utilities, facilities, buildings, land, machinery, and equipment, to street landscaping and more.
SBA loans are subdivided into three categories depending on small businesses’ needs:
7(a) loans have a broad application scope for small businesses. They can be used for many business purchases like working capital, equipment, inventory, real estate purchasing, and business expansion.
Under the 7(a) loans, a small business can procure nine different types of loans, each targeting a different business need. These include: Standard 7(a), 7(a) Small Loan, SBA Express loan, Export Express, Export Working Capital, International Trade, Preferred Lenders, Veterans Advantage, and CAPLines.
Microloans are small loans of up to $50,000 maximum that can be used to purchase equipment and inventory as well as working capital and complete various business projects. Microloans are accessible to home-based businesses and self-employed individuals through the SBA lending program.
While 7(a) loans and microloans have their advantages, the SBA 504 loan is the ideal loan for both buyers and sellers of commercial real estate.
CDC/504 loans are large loans up to $5.5 million that the business can use to acquire fixed assets like real estate and equipment. The CDC/504 loans or SBA 504 loans are only available through Certified Development Companies (CDCs), like BFC, and are partially funded by banks.
For businesses looking to invest in commercial real estate and real estate developers looking to sell property, the SBA 504 loans are the best loan option because of the way that they are structured. The financing is broken down into 10-40-50 with the buyer, the CDC, and a bank all involved in funding:
- The loan borrower pays 10% of the costs.
- The CDC makes an SBA-guaranteed loan that is backed by the government for up to 40% of the cost.
- A lender, typically a bank, covers the remaining 50% of the cost.
How Can You Benefit from the SBA 504 Loan?
SBA 504 loans appeal to businesses looking to invest in commercial property as well as commercial property sellers and agents.
The SBA 504 loan is beneficial for both buyers and sellers of commercial real estate
The SBA gives the CDC a checklist of rules and regulations that the CDC has to abide by to qualify the client for the loan, this makes it easy for the client to qualify for the 504 loan. Banks have to follow the same SBA rules as well as their own rules which can make it harder for buyers to qualify for the loans compared to going through a CDC like BFC.
When a loan borrower works with BFC to qualify for the 504 loan, BFC provides a pre-qualification letter ensuring that the borrower’s financials have been properly reviewed and that the borrower should be able to qualify for the loan.
Other SBA 504 loan benefits include:
- Low-interest rates. The loans are safer for lenders because the government backs them in case the loan defaults.
- Borrowers have up to 25 years to pay the loan when purchasing real estate and 10 years when purchasing equipment.
- Borrowers can access up to $5.5 million from the CDC/504 program, which gives the buyer significant buying power.