SBA Loans for Commercial Real Estate

by A. Heinrich

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The Small Business Administration was created in 1953 as an administrative branch of the US government assigned to promote and aid the interests of small business. An integral part of the aid the SBA provides is the loans it originates or guaranties for commercial properties occupied by small businesses. SBA loans are intended as a "last-resort" for small business borrowers: in order to qualify from a loan from the Administration, a borrower must have been turned down by at least two conventional lenders. The current volume of loans held by the SBA is approximately $45 billion.

Examples of SBA programs are as follows:

SBA 7(a) Program:

The 7(a) program is a guaranty program?i.e. the loan is originated by qualified lending insitutitions?banks?and guarantied against default by the SBA. The program is mainly for acquisition, has a maximum loan amount is $2 million, a 25-year maximum term, and no more than 2.75% over Prime interest rate for loans of more than 7 years and $50,000. In the words of the SBA: The 7(a) program "serves as the SBA's primary business loan program to help qualified small businesses obtain financing when they might not be eligible for business loans through normal lending channels. It is also the agency's most flexible business loan program, since financing under this program can be guaranteed for a variety of general business purposes. Loan proceeds can be used for most sound business purposes including working capital, machinery and equipment, furniture and fixtures, land and building (including purchase, renovation and new construction), leasehold improvements, and debt refinancing (under special conditions). Loan maturity is up to 10 years for working capital and generally up to 25 years for fixed assets." (http://www.sba.gov/financing/sbaloan/snapshot.html)

Certified Development Company (504) Loan Program

A Certified Development Company is a type of non-profit organization set up to promote development in a community. The SBA 504 program is designed to guarantee subordinate loans made by CDCs to qualified small businesses, in conjunction with a low-LTV senior loan from a ?private-sector? lender, i.e. a bank. The 504 program is mainly for acquisition of commercial properties occupied by a small business, with maturities of 10-20 years, maximum loan amount of $2 million, and interest rates at "an increment" above the rate on 5 or 10 year treasury issues.

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