9 May Why Choose an SBA Loan for Real Estate Investment
SBA loans are a great option to finance your real estate investment. They offer a range of benefits that make them a top choice for many investors. When you buy a piece of real estate for your business, you need money to finance the purchase. Buying commercial property may be both the best investment and the most expensive. One significant benefit of an SBA loan is the possibility to simplify the complicated and costly process of purchasing commercial real estate.
However, you may not have enough cash to buy real estate. That’s where an SBA loan
comes in: It’s a loan from the U.S. Small Business Administration (SBA) at very low-interest rates. That makes it more affordable for you than many other sources of financing. But why go for an SBA loan? Here are the benefits of getting an SBA loan for your real estate investment.
Advantages of SBA Financing
SBA loan interest rates vary depending on the lender, loan type, and loan amount. SBA loans often have some of the lowest interest rates available. Even though expenses from the SBA and individual lenders are included, the annual percentage rate (APR) remains extremely low.
Low down payments
A down payment of between 15% and 30% of the purchase price or project cost may be required under traditional financing. SBA financing has traditionally required lower down payment, and in some cases, SBA lenders can finance up to 100 percent of the deal. Lower down payment requirements are critical for preserving much-needed working capital.
Long term financing
Because an SBA real estate loan has a 25-year repayment period, the business owner avoids the danger of having to renew short-term bank funding every three or five years. Equipment, start-up working capital, leasehold improvement, and business purchase finance are all available through the SBA 7(a) loan, which has a 10-year payback period.
Borrowers can also make additional principal payments to the loan, which can then be re-amortized to lower monthly payments in the future.
There are no prepayment penalties on loans with amortizations of less than 15 years. As the needs of small businesses change, this gives them more flexibility.
Flexibility and Variety Uses
You can combine numerous parts of a project’s finance needs into one loan, such as real estate, upgrades to real estate, equipment, operating capital, and closing expenses, with loan amounts ranging from $50,000 to $5,000,000. Unlike traditional choices, which require the business to piece together various loans with varying terms and rates to satisfy the entire demand, the SBA permits all qualified uses of profits to be rolled into one loan with one term and one rate.
SBA real estate loans provide excellent terms and rates, but they are subject to tight qualifying criteria. If you are among the selected few who are eligible for an SBA real estate loan, you have two options: the real estate-specific SBA 504 loan or the more multipurpose SBA 7(a) loan.
Choosing between these two SBA real estate loans, consider your priorities: do you want cash solely for real estate purchases, or do you want funding that may be used for a variety of company investments? SBA 504 loans are a good option for the former. We recommend an SBA 7(a) loan for the latter. Larger real estate purchases and firms that meet job creation and public policy goals are also stronger candidates for SBA 504 loans.
Whatever choice you choose, SBA real estate loans will assist you in purchasing the next building, office space, warehouse, or other property that your company requires to expand.