5 Benefits of an SBA Loan for Real Estate

A Small Business Administration (SBA) loan might appear to be just for a business to expand its operations or to address working capital issues. However, if you are looking to invest in residential real estate, an SBA loan could be a way to maximize your investment.

Real estate investing is a way to build wealth, but it can be overwhelming for many individuals who are just getting their business off the ground. Many investors and real estate agents are using the SBA options to secure necessary financing for their clients. Why should you not do the same?

Here are five things you need to know about how an SBA loan can work for you:

1. SBA Loans are 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. Two types of SBA loans can be used for real estate: 7(a) loans and 504 loans. SBA 7(a) loans are available for up to $5 million with repayment terms of up to twenty-five years when you use them for qualifying purposes, such as to purchase or lease buildings or land or use for landscaping, building renovations, or construction. SBA 504 loans are available for up to $5.5 million with repayment terms of up to twenty-five years.
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. These loans can be used to purchase a building or renovate it or for the construction of new facilities. They cannot be used for working capital, consolidating or repaying debt, or refinancing.
3. Provides options outside of traditional lenders: Working with an SBA lender, you can use a streamlined process, giving you all of 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. 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. Even more importantly, rule changes to SBA lending introduced last year include the option for more non-bank lenders to apply for a license. This is great news for small businesses. This means that in addition to getting an SBA loan from a bank or credit union, the SBA allows a limited number of small business lending companies to offer SBA 7(a) loans. This option allows nonprofits and mission-oriented lenders to focus on underserved markets, including startups and women- and veteran-owned businesses. Lenders may also be for-profit companies, such as fintechs. With more options on the market, borrowers can find a company that will give them personalized service and competitive terms.
4. Benefits for realtors and expanded clientele: When you work with a lender that 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. Another recent change to SBA lending policy aims to break down the barriers to financing for millions of aspiring entrepreneurs with criminal histories and citizens returning to the country, which will allow many more individuals and businesses to qualify than those who have historically met the lending requirements. More potential clients are a great thing for realtors and the economy as a whole.
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 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. 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.