How 2 SBA loans can help owners finance commercial properties – Daily News

on May13
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Owners of commercial real estate either occupy the building they own or rely upon a third party – a tenant – to pay rent.

In the former, owners are known as owner-occupants and the latter as investor owners. Occupants of commercial real estate are, in some cases, able to finance their purchases through loans originated or guaranteed through the Small Business Administration.

Generally, SBA loans come in two flavors — 7(a) or 504. A 7(a) loan is an SBA-guaranteed first trust deed of typically 90% of the purchase. It has a maximum loan amount of $5 million. The 504 loan requires two loans – one from a bank of 50% and one a government “debenture” of 40%. It also has an SBA loan maximum of $5 million.

With that explanation as a backdrop, let’s explore how this loan relief works.

The SBA will be making the first six months of payments on all 7(a) loans funded before Sept. 27 for both purchases and refinances.

The SBA also will automatically pay the principal, interest and fees of new 7(a), 504, and microloans issued before Sept. 27.

Read more about the SBA relief programs here.

In some cases SBA loans can offer:

  • Appraisal rebates before May 15
  • 45-day interest-rate locks at SBA 7(a) loan approval
  • 25-year loan programs below 3.5% rates (as of April 22)
  • 12-month leaseback eligible for 10% down SBA loans

Your best source for an SBA 7(a) loan would be to go through your existing business bank. However, I would caution you to confirm that business bank is in fact an SBA-preferred lender.

The preferred lender status enables a bank to approve a 7(a) loan in-house without a review and approval by the SBA. Once again, this is a great way to finance 90% of your purchase at fixed-interest rates in some cases.

If your choice is to originate a 504 debenture loan, you’ll need to enlist the services of a certified development company – or a CDC. As mentioned, the 504 loan is actually two loans — one from a bank and one from the government.

The CDC can review your package, grant approval, then put you in touch with a capable bank that can loan 50% of the purchase price. In order to qualify for the payment forgiveness program, your loan – including the SBA debenture – must be completely funded by Sept. 27, 2020

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104. 

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