SBA 7(a) loans for commercial real estate

The SBA 7(a) program is a loan made by an approved lender and partly guaranteed by the U.S. Small Business Administration (SBA). That guarantee lets lenders accept lower down payments and longer terms than a conventional commercial loan would allow.

This page covers 7(a) financing for commercial real estate your business will use. Buying, building and renovating owner-occupied property are among the program’s most common uses. The terms here are the most favorable the program offers.

A good fit if you are:

• Buying the building your business will operate from
• Building or renovating space for your own business
• A newer business, or short on cash for a large down payment
• Working with a credit score of 600 or higher

Probably not the right fit if:

• You’re buying property as an investment. See conventional commercial loans or DSCR loans.
• You need working capital, equipment or inventory, with no property involved. See SBA business loans.
• Your request is under $250,000. Commercial real estate loans start at $250,000.

The occupancy rule. When SBA money buys or improves real estate, your business must occupy the property. The rule doesn’t apply to working capital or equipment loans.

Your rate depends on the loan amount, repayment term and the lender’s view of your credit. Because 7(a) rates float with Prime, your payment can change over the life of the loan.

A single 7(a) loan can combine uses. For example, it can cover the building plus equipment or working capital in one loan.

To qualify, your business must:

• Operate for profit
• Meet SBA small business size standards
• Do business in the United States
• Have reasonable owner equity to invest
• Have tried other financing options before seeking SBA help
• Occupy the property being financed

Refinancing. SBA loans can refinance existing business debt when the new loan materially improves your terms. That could be a lower rate, a longer term or better cash flow. The SBA won’t approve a refinance that simply moves the debt.

Collateral. Collateral may be required, but the SBA won’t deny a loan solely because collateral is short.

• Three years of personal and business tax returns
• SBA loan application
• IRS Form 4506 (lets the lender verify your tax returns with the IRS)
• SBA Form 1919
• Resume for the business’s manager
• Three years of financial projections
• SBA debt schedule
• Articles of incorporation for the borrowing entity

Construction projects also need: a contractor resume, a complete breakdown of construction costs, and copies of plans, specs and permits.

What we charge:

• A $1,500 refundable underwriting fee, collected upfront. It becomes non-refundable if you agree to move forward with an option and then don’t close.
• Typically 1 point (1% of the loan amount), collected at closing.

What the SBA and lender charge:

• SBA guarantee fee: varies with loan amount and term
• Packaging fee: charged by the lender for preparing the application
• Servicing fee: ongoing, for managing the loan
• Closing costs: legal, appraisal and other third-party costs

Both SBA programs finance owner-occupied commercial property. They’re structured differently.

7(a) is one loan from one lender, partly guaranteed by the SBA. It’s more flexible. It can cover real estate, working capital, equipment and acquisition, sometimes in the same loan. It generally moves faster.

504 splits into two loans: a conventional first mortgage plus a second loan from a Certified Development Company (CDC). It’s limited to real estate and heavy equipment. It offers long-term fixed rates, where 7(a) is typically variable.

If you want a fixed rate on a straightforward purchase, 504 is worth comparing. If you need flexible use of funds or a faster close, 7(a) usually wins. If 504 is the better structure for your project, we’ll tell you and point you to a CDC in your market.