There are a plethora of merits you could reap from owning a commercial space. With the SBA financing program, you can acquire funds to own commercial real estate investments with as little as 10 percent upfront payments. The bank will offer you a loan, and SBA guarantees it. These loans are perfect for business owners who want to improve, buy or construct a commercial property. This article will explain what you need to know about using SBA financing in commercial real estate.
Making Upfront Payment
Since your lender or bank is offering the loan, they are responsible for the requisite amounts of down payment. The terms of down payment amounts will depend on the lender; however, most lenders may request ten percent or more for businesses with high risks.
Choosing Between the Types
There are two forms of SBA loans that provide funds to entrepreneurs who need money to buy highly valuable assets, such as commercial property. They include the SBA 504 loan and the SBA 7a loan. The SBA loan that is excellent for commercial property is the SBA 504 loan. It is ideal for financing assets like heavy equipment or real estate. It has fixed interest rates and favorable down payment. The SBA 7a loan is perfect for general financing purposes beyond equipment or real estate.
Qualifying for SBA Financing
To qualify for the SBA loan, you should have a credit score of more than 680 and make a 10 percent down payment. You should also have a debt service coverage ratio of more than 1.25x. You can calculate the debt service coverage ratio by subdividing the yearly net income with the total of the interest payments and annual principal. Moreover, you will have to show your repayment ability as well as possess a clean financial background. Ensure your financial history has no foreclosures, recent bankruptcies or tax liens.
Using SBA 7a Loan and SBA 504 Loan
SBA 504 loans are most appropriate if your financing requirements align with what they cover, and you require more funds than 7a loans can offer. Although you get a short-term repayment period, you may save more with an SBA 504 loan than a 7a loan. An SBA 7a loan is perfect if your physical net worth surpasses the set maximum of the SBA loan program.
When you qualify for an SBA loan, you will have to settle on either the SBA 504 loan or 7(a) loan. Ensure you first examine your needs in purchasing real estate or other potions of business investments. Make sure you can pay the upfront payment and maintain a clean financial background.