How the SBA Loan Process Works for Commercial Property Purchases

Jul 31, 2024

The Small Business Administration (SBA) offers various loan programs to help small businesses secure financing for commercial property purchases. The most common SBA loan programs for real estate are the SBA 504 Loan and the SBA 7(a) Loan. Here’s a step-by-step guide to understanding how the SBA loan process works for commercial property purchases.

3D Check List with House

### 1. Determine Eligibility

Before applying for an SBA loan, ensure your business meets the eligibility requirements:
- **Size Standards:** Your business must meet the SBA’s size standards for a small business.
- **Occupancy Requirements:** For SBA 504 loans, your business must occupy at least 51% of the property if purchasing an existing building or 60% if constructing a new building.
- **Business Type:** Your business must be a for-profit entity operating in the United States.
- **Creditworthiness:** You should have a good credit history and demonstrate the ability to repay the loan.

### 2. Choose the Right SBA Loan Program

- **SBA 504 Loan:** This program provides long-term, fixed-rate financing for major fixed assets such as real estate. It involves a partnership between a Certified Development Company (CDC) and a private lender. Typically, the loan covers up to 90% of the total project cost.
- **SBA 7(a) Loan:** This is the SBA’s primary program for providing financial assistance to small businesses. It can be used for various purposes, including purchasing commercial real estate. The 7(a) loan offers more flexibility in terms of eligible uses and has a higher loan limit than the 504 loan.

### 3. Gather Required Documentation

Prepare the necessary documentation for your loan application, which typically includes:
- **Business Plan:** A detailed business plan outlining your business operations, goals, and financial projections.
- **Financial Statements:** Personal and business financial statements, including income statements, balance sheets, and cash flow statements.
- **Tax Returns:** Personal and business tax returns for the past three years.
- **Credit Reports:** Personal and business credit reports.
- **Property Information:** Details about the property you intend to purchase, including appraisal and environmental reports.

### 4. Find a Lender

Identify an SBA-approved lender to work with. You can find SBA lenders through the SBA’s website or by contacting your local SBA office. Lenders can include banks, credit unions, and non-bank lenders. It's important to choose a lender experienced with SBA loans to ensure a smooth process.

### 5. Submit Your Loan Application

Submit your loan application along with the required documentation to your chosen lender. The lender will review your application to determine your eligibility and assess the risk of lending to your business. They may request additional information or documentation during this review process.

### 6. Lender Review and SBA Approval

Once the lender approves your loan application, they will submit it to the SBA for final approval. The SBA will review the application to ensure it meets their requirements. This process can take several weeks. If approved, the SBA will issue a loan authorization outlining the terms and conditions of the loan.

### 7. Loan Closing

After receiving SBA approval, you will proceed to the loan closing. During this stage, you will sign the loan agreement and other necessary legal documents. The lender will disburse the loan funds, which can be used to purchase the commercial property. The closing process involves coordination between the borrower, lender, SBA, and any other relevant parties.

### 8. Repayment and Monitoring

Once the loan is disbursed, you will begin making regular payments according to the loan terms. SBA loans typically offer favorable terms, including lower down payments and longer repayment periods. The SBA and the lender will monitor the loan to ensure compliance with all terms and conditions.

contract signing

### Conclusion

The SBA loan process for commercial property purchases involves several steps, from determining eligibility and choosing the right loan program to gather documentation, finding a lender, and going through the application and approval process. By understanding these steps and working with experienced professionals, you can successfully secure an SBA loan to finance your commercial property purchase. For expert guidance and support in navigating the SBA loan process, consider partnering with Atlantic Commercial Lending, a licensed commercial mortgage broker. Their expertise can help you achieve your business goals and secure the financing you need.