Financial benefits of a SBA loan include:

  • Less money down - The commercial loan credit enhancement provided by the SBA guarantee can substantially reduce the amount of money needed to be put down to purchase a commercial property. Sometimes 100% financing for the purchase, refinance, renovation and construction of commercial properties is available under the 7a program.

  • Longer repayment terms - A SBA commercial loan allows for a longer repayment period than most conventional commercial loans; enabling you to keep your commercial mortgage payments low and improve cash flow. Up to 25 year commercial loans are available under the 7a program. The 504 program would utilize a first mortgage with a minimum term of 20 years and a second mortgage with a 20 year fixed rate.

  • No balloon payments - You will not be forced to refinance your SBA commercial loan at any time.

Examples of a typical SBA 7a commercial loan borrower include:

  • A borrower who wants to buy a business with or without commercial real estate who does not want their loan amount limited to the hard collateral value.
  • A borrower who wants to purchase or construct a commercial building and wants up to 90% commercial mortgage financing.
  • A borrower purchasing or starting a business with collateral.
  • A borrower who wants to finance the majority of closing costs into the loan.
  • A borrower wanting to buyout a partner or buy a professional practice and wants 100% financing


The Small Business Administration (SBA) 504 commercial loan program was created to help small to mid-sized business owners acquire commercial real estate property without the down payment requirements of a traditional commercial loan. In order to qualify, 51% or more of the property must be occupied by the borrowers business if it is a purchase money transaction. If it is a construction loan the borrower's business must occupy a minimum of 60% of the property. Title to the property does not have to be held in the name of the operating company or the borrower(s) individually. It is common for a holding company to be formed to take title to the property and subsequently lease it back to the operating company. There are certain criteria for eligibility in the 504 commercial loan program:

The companys average net income cannot exceed $2.5 million after taxes for the preceding two years.

The anticipated project size must be greater than the personal, non-retirement, unencumbered liquid assets of the guarantors/principals.

Tangible Net worth of the operating companies must be $7.5 million or less.
The 504 loan requires that one new job be created/retained for every $35,000 provided by the CDC (Certified Development Company), unless the business meets other public policy goals.

Passive investment companies, non-profit businesses, lending institutions, real estate development companies, and some other business types are not eligible for 504 loans.


The format of the 504 commercial loan uses a traditional first mortgage from the private sector for 50 percent of the total project costs. The project costs include the cost of land and existing buildings; hard construction, renovation costs, soft costs; and most commercial loan closing costs. The private lender's note is separate and carries its own rate, terms, and conditions. A second mortgage from the CDC is utilized for up to 40 percent of the project costs. The borrower's own equity makes up the remaining 10 percent. If the property is special purpose in nature or it is a start up business, the borrowers injection is increased to 15%. If the property is special purpose in nature and it is a start up business, the borrowers injection is increased to 20%.  Project costs are financed in their entirety with the 504 loan unlike most commercial bank loans which only finance a percentage of the lesser of purchase price or appraised value If the borrower decides to sell their property, these commercial loans are assumable as long as the buyer qualifies under the SBA guidelines.

Less paperwork than you think!

The SBA has worked hard in recent years to reduce the amount of paperwork necessary to apply for this commercial loan.

There are added fees.

It is true that the fees are slightly higher for this type of commercial loan but the fact that these commercial loans are for 25 years eliminates the need to refinance and thus keeps the average cost over the financing life of the commercial property to a minimum.

The SBA commercial loan closes pretty quickly.

We can do many SBA 504 loans in 60 days, which is about the same amount of time a traditional commercial loan takes if you are not in a rush.  Now, the pre-approval standard for many specialized SBA lenders is becoming 24 to 48 hours, with commitments in four to five days.

Borrowers do not have to use their house as collateral.

The majority of 504 loans only securing the commercial property and/or the equipment that is being financed. Most commercial lenders do not require someone's house as collateral.

Borrowers with an imperfect credit history can qualify for the SBA loan.

The 504 commercial loan program is able to approve those with personal bankruptcy, as long as it has happened more than 7 years ago. The SBA is also allowed to approve those with misdemeanors and felonies, though the process will take a little longer to close.