5 Benefits of an SBA Loan for Real Estate Investments

A Small Business Administration (SBA) loan might appear to be just for a business to expand its operations or to address working capital issues, but the truth is that it can be beneficial for your business in a number of ways, especially for real estate investors. If you are looking to invest in residential real estate, an SBA loan could be a way to maximize your investment and increase your returns over time.

Real estate investing is a way to build wealth but can be overwhelming for many individuals just starting out, particularly when they are looking for capital to fund purchases and effectively manage their portfolio. Many investors and real estate agents are using the SBA option to secure necessary financing for their clients. Why should you not do the same?

Here are 5 benefits of small business loans for real estate investments.

1. SBA Loan is Secured

While the name might imply that the government is lending you the money, the truth is that the government only provides security for the loan. Instead, you work with an actual lender who will review your application and approve your funding.

The government guarantees between 75% to 90%, while providing a lower interest rate, making it an appealing option for purchasing real estate investments.

SBA loan securitization requirements vary by the type and amount of loan, but all else being equal, secured lending is usually less expensive for the borrower than unsecured loans.

In some instances, these loans must be secured with collateral, but if you borrow an amount greater than $25,000 but less than $350,000, the amount of collateral may vary by each lending institution. Specific securitization requirements from the SBA usually only apply to 7(a) loans for greater than $350,000.

2. CDC/SBA 504 Loan for Direct Individual Customers

This type of loan is a combination of a community development project and an investment with the goal of creating economic development in a community through investment in small businesses. The loan is typically structured with SBA providing 40 percent, a lender providing 50 percent of the financing, and the borrower or commercial real estate business providing the other 10 percent. That gives you the ability to make your investment dollars go further, allowing you to expand your portfolio efficiently and effectively. These loans can be used to purchase a building and renovate it or for the construction of new facilities. However, these loans cannot be used for working capital, consolidating or repaying debt, and refinancing.

504 loans are a long-term, fixed-rate financing mechanism available for fixed assets that focus on promoting business growth and job creation. The maximum loan amount for a 504 loan is $5.5 million. Eligible companies must operate for-profit in the United States, have a tangible net worth of less than $15 million, and have an average net income of less than$5 million after federal income taxes for the two years prior to submission of a loan application. However, it does give you the ability to tap into funds necessary for properties that align with your investment strategy.

3. Provides Options Outside of Traditional Lenders

Working with an SBA lender, you can use a streamlined process, giving you all your options regarding the size of the loan and how it can be used. Commercial lenders, such as Penn Commercial Capital, may even offer the ability to have your loan approved before you pick out a property, without upfront costs or fees attached.

Pursuing a loan through traditional lending routes, such as banks or credit unions, can be difficult for many businesses. Alternative options not only make it easier to secure funding, but they can be much more convenient to obtain. This convenience offers greater flexibility for your company, as you can access capital quickly to pursue other business opportunities as they arise.

For smaller loans, an SBA lender can provide you with quality service, instead of trying to get on the radar screen of larger banks or lending institutions.

4. Benefits for Realtors

As a realtor, when you work with a lender who can provide SBA loans, you give your clients another option to fund their investment property purchases. With this relationship in place, you can get things done quickly for your clients, making it ideal for moving quickly to offer on a property. Plus, you can take advantage of pre-approvals to help narrow down the real estate options available to your client.

Providing your clients with more options gives them a better chance of succeeding in their investment endeavors and, in turn, boosts your reputation and brand. It can also help you close more deals, which is a great thing for your business prospects and future outlook!

5. Professional Referral Sources

The SBA approves both conventional bank loans and alternative lenders or non-banks. Finding the right lender to meet your needs means finding one who can offer you the right financial options for your investments.

Penn Commercial Capital provides a variety of options for realtors and your investment clients, including commercial and residential real investment options. Our company understands that not all businesses have the same needs, which is why it’s important for us to offer our clients a range of lending options. The more options available, the greater the chances are that we can secure funding on better terms than competitors or traditional lending institutions.

We provide our clients with quality services for every stage of the process, from application to closing. Our professional referral sources allow you to refer others to us for lending services without worrying that we will try to cross-sell additional services. The result is that you can confidently grow your real estate investment portfolio, knowing that you have a lending institution that understands the needs of your unique business model.