There is a whole world of financing options to learn about when you start to buy commercial real estate, and many of the products that stand out as popular choices are designed for investors, not for small companies looking to find a home for their operations. Luckily, there are a lot of products designed for that kind of investment as well, it just might take a little more time to find them. Traditional real estate loans with amortizing payments and fixed interest rates are available for businesses with the reserve cash and income to secure bank approval, but many small companies don’t quite meet those criteria. That’s where the Small Business Administration steps in.
SBA Loans for Commercial Real Estate
The SBA guarantees a portion of the loans to qualifying applicants in its 7a and 504 programs, allowing them to access capital for a variety of long-term investments, including real estate. This allows those small companies to access interest rates and terms that would normally be out of reach. There are some rules and restrictions, though. The SBA’s real estate loans are not designed for investment property. They require your business occupy the majority of the space, as measured in its square footage. You can have outlying lots or additional storefronts to rent, but they have to be a secondary use for the property.
SBA loans for commercial real estate also require a sizable down payment. The Small Business Administration splits the risk with the lending institution, guaranteeing 40% of the property’s value. The lender assumes the risk for the other 40%, and a 20% down payment is required. These are long-term loans, though, and that sizable down payment helps set a low monthly payment that helps you realize a return on the investment sooner.
Applying for Small Business Loans
Applying for an SBA loan is a little different from applying for other commercial real estate loans, because they require you to verify your income and assets are below the program’s maximum threshold. They also look for the business plan and application to include information that traditional lenders don’t usually require. For example, SBA loans are supposed to go to businesses that will help improve the economic health of their communities. That means demonstrating the ability to create jobs with an expansion, to encourage local business by choosing local suppliers, and to take other steps to reinvest in the people who help you succeed.
Small businesses seeking shorter-term loans or smaller down payment options should also seek out private programs designed to help smaller companies buy commercial real estate. They are out there, and often the financing options they provide are the best path forward for companies needing a low down payment solution.