If you are a small business owner thinking about purchasing or renovating commercial real estate to expand your business, consider using the U.S. Small Business Administration (SBA) lending program. Through this program, you may enjoy the same long-term, fixed-rate funding terms that larger firms benefit from. Rates are usually favorable, bond market costs. Commercial Mortgage Depot is here to tell you about SBA Loans and all the opportunities around New York, New Jersey, Connecticut, and Pennsylvania. We help firms of all sizes and work on complex partnerships. Our team in Clifton, New Jersey is here and ready to help your business grow its plans.

Qualifying for an SBA 504 Loan

Many businesses are eligible for the SBA 504 loan program. The SBA defines a small business as one with a net worth under $7 Million and net profits (after taxes) under $2.5 Million. Many types of operation can be funded, for example, manufacturing, wholesale, service, and professional or retail lines of business qualify. Eligible costs can include fixed assets such as:

  • Land and improvements (including owner-occupied buildings)
  • Grading and street improvements
  • Utilities
  • Parking lots and landscaping
  • Construction of new facilities
  • Modernization, renovation, or conversion of existing facilities
  • Purchases of long-term equipment or machinery with a life of at least 10 years, and
  • Soft costs like architectural and legal fees, environmental studies, appraisals, and interest and fees on the construction and/or interim bank financing.

SBA 504 Loan projects are typically structured with many of the costs funded through a private lender. Many will get a 10 year loan with a fixed or variable rate. Remaining costs usually get funded with a fixed-rate certificate secured with a junior lien from an SBA Certified Development Company (CDC). This gets backed by a 100% SBA guarantee.

Remaining costs are funded by the purchaser. Often, companies are approved for a low ten percent down payment. Certain areas aiming to attract a business to their region will take a subordinate position or provide financing as well, reducing the down payment required. This will be a great up-front savings to the business.

Using the SBA 7(a) Loan Guaranty Program

For costs such as working capital, inventory, debt consolidation or refinancing—businesses can be eligible through a separate SBA 7(a) Loan Guaranty Program. This is the SBA’s primary program. It helps businesses obtain financing when they cannot find other reasonable terms and rates. The SBA guarantees a portion of these loans, it does not provide direct funds to the borrower. The regular maximum amount for this loan is $5 Million, there is no minimum amount. The SBA works with preferred lenders, new lenders, and express lenders who can request the SBA guarantee for their funds. For further insights on SBA Loans, contact Commercial Mortgage Depot in Clifton, New Jersey. Grow your business and thrive today—we work in the New York, New Jersey, Connecticut, and Pennsylvania areas.

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SBA Loans

When it comes to SBA financing, there are various loan programs offered and a lot of information to take in on the subject. The right choice of financing for a borrower within these programs will vary depending on your individual needs. SBA loans are made by a private lender and guaranteed up to 80 percent by the SBA, which helps reduce the lender’s risk and will help the lender provide financing that’s otherwise unavailable, at a reasonable rate. To obtain an SBA loan it is important to remember one must qualify as a small business according to the SBA standards, which vary from industry to industry.    

One of the more popular loan programs offered through the SBA is called the 7(a) General Business Loan Guaranty Program. This loan is often used by borrowers for a business start-up or to meet various short-term or long-term needs of existing businesses, such as purchasing equipment, replenishing inventory, real estate purchase, or working capital. This type of loan is generally guaranteed up to $750,000. The guaranty rate is 80 percent on loans of $100,000 or less and $750,000.  

State Business and Industrial Development Corporations (SBIDCs) are capitalized through state governments. They usually offer long-term loans, which vary from 5-20 years, for either the expansion of a small business or for the purchase of capital equipment. Lender requirements and rates of interest vary from state to state. Some SBIDCs will commit funds to very high-risk ventures, whereas others will look for minimal risk.

CDC-504 loans provide fixed-asset financing through Certified Development Companies (CDCs). These nonprofit corporations are sponsored by private-sector organizations or by state and local governments to contribute to economic development. The 504 CDC Loan Program is designed to enable small businesses to create and retain jobs-the rule of thumb is one job for every $35,000 provided by the SBA.

The interest rate charged on SBA guaranteed loans is based on the prime rate. While the SBA does not set interest rates, since they are not the lender, it does regulate the amount of interest that a lender may charge an SBA borrower. If the loan has a term of seven years or more, the SBA allows the lender to charge as much as 2.75 percent above the prevailing prime rate. If the loan has a term of less than seven years, the surcharge can be as much as 2.25 percent.

Some examples of assets that are commonly used and accepted as sources of collateral for SBA loans include various forms of property, life insurance policies, accounts receivable, stocks and bonds, chattel mortgages, personal endorsement of a guarantor or warehouse receipts for marketable merchandise. 

In exchange for this below-market, fixed-rate financing, the SBA expects the small business to create or retain jobs or to meet certain public policy goals. Businesses that meet these policy goals are those whose expansion will benefit business district revitalization (such as an Enterprise Zone), a minority-owned business, or rural development.

To learn more about a SBA Loan or to see if you qualify, give us a call at Commercial Mortgage Property (973) 742-1111 or Click Here for free no obligation quote!