When purchasing a business that includes commercial real estate, an SBA loan can be an excellent financing option. These loans, typically under the SBA 7(a) or SBA 504 programs, provide favorable terms and lower down payment requirements compared to conventional loans, making them attractive for business buyers.
SBA 7(a) Loans are the most versatile option for business acquisitions, offering funding for both the business purchase and the real estate. These loans can cover up to 90% of the total cost, reducing the upfront cash needed. They also come with competitive interest rates and longer repayment terms, often up to 25 years for real estate, which can make monthly payments more manageable.
SBA 504 Loans are tailored specifically for purchasing commercial real estate and large equipment. This option combines a loan from a Certified Development Company (CDC) with a bank loan, allowing buyers to secure up to 90% financing for the real estate component. The 504 loan offers fixed interest rates for the CDC portion, adding predictability to payments. It is ideal when the real estate portion of the deal is substantial.
What to Expect in the Application Process: Buyers will need to provide detailed financial records, business plans, and a thorough valuation of the business and property. Lenders will evaluate the property’s appraised value, the buyer’s creditworthiness, and the profitability of the business. SBA loans generally require the buyer to have 10-20% as a down payment, along with additional operating capital, and collateral may be required.
Why Choose an SBA Loan? Lower down payments and longer terms make these loans a great choice for business buyers seeking to preserve cash flow while acquiring an income-generating property. With a well-prepared application, an SBA loan can be a practical pathway to owning a business and the property it operates from.
