Our practice closes a number of SBA-backed loans and represents many commercial borrowers who use this federal government-backed program. The two types of SBA loans typically made are either an SBA 7(a) or an SBA 504 loan.
The SBA 7(a) is for primarily commercial borrowers who need money for working capital, household improvements, refinance debt, or buy a business. It can also be used to finance real estate.
The SBA 504 loan is for commercial borrowers who need money for the purchase or refinance of real estate, or for construction.
For a comprehensive list of loan eligibility requirements, visit the SBA’s website at https://www.sba.gov/loans-grants/see-what-sba-offers.com.
The benefit of the SBA 7(a) loan is that they enable a borrower who may not otherwise qualify for a conventional bank loan (due to issues such as type of collateral, credit issues, type of business, etc.) to get access to capital. The SBA 504 loan is popular as it requires the borrower to have only 10% equity in a property or real estate project (typically 20% equity is required for a conventional loan), and also provides borrower with long term fixed-rate financing.
There is no free lunch, however. The initial application process is more involved with SBA loans, the initial and ongoing fees must be considered, as well as prepayment penalties. Circumstances are different for each borrower and business, and SBA loans may make an important contribution for certain borrowers. We urge you to discuss these programs with your commercial lender as part of your loan process.