Commercial loans are invaluable for businesses and improve financial stability and flexibility. They offer an appreciating asset, income-generating potential, and tax benefits. SBA loans are ideal if you are considering purchasing a commercial property.

SBA Real Estate Loan Options

Businesses tired of leasing and looking for a real estate loan have two SBA loan options: SBA SBA 7a and CDC/504 loans. Below is an outline of the two loan types, so you can determine the best one for your business.

SBA CDC 504 Loans

These loans help enterprises acquire several assets, from purchasing or renovating existing buildings, constructing new facilities, purchasing land, and buying long-term machinery. They can also refinance debt accumulated from new facilities and equipment.

In this SBA loan, a private business lender and a certified development company (CDC) partner to offer 50% and 40% of the project cost, respectively, while the business caters to 10% of the project cost. The US Small Business Administration (SBA) guarantees the CDC part of the loan. While the loan amount does not have a cap, the SBA-guaranteed portion has a limit of $5 million.     

The SBA CDC 504 loan program is lucrative because of the low down payment and fixed interest rates for the CDC loan. Repayment terms are favorable, and you get up to 20 years. Eligibility criteria for this loan include operating in the US, operating a for-profit company, meeting SBA small business size standards, and being able to repay the loan.

SBA 7(a) Loan

If you want more flexibility with your commercial real estate loan, the SBA 7(a) loan is an excellent option. Apart from purchasing real estate, you can use the funds for a wide range of business needs, such as starting a business, purchasing inventory and equipment, refinancing debt, and working capital.

With this loan, you can get a loan of up to $5 million via a private lender and need a 10% down payment. A business receives an extended repayment period of up to 25 years, and interest rates vary with lender and credit score. The SBA 7a loan has several requirements, including meeting the lender’s credit requirements and SBA size standards and operating or proposing to operate in the US.

Which SBA Commercial Real Estate Loan is Better?

Both SBA loans are reasonable compared to what other financial institutions offer. Sometimes, one makes more sense than the other, depending on your financial needs. An SBA 504 loan is better when you want more money than the SBA 7a loan can offer or need to refinance the SBA 7a loan. The SBA 7 (a) loan is an excellent option when you have more general financing needs than what the SBA 504 permits.

SBA real estate loans are perfect for companies looking to buy real estate, purchase machinery and equipment, renovate an existing property, or refinance existing debt. They appeal to enterprises with huge funding potential, low-interest rates, manageable down payment, and lenient eligibility requirements. Call KMS Funding today for more information on commercial real estate loans.