Small Business Real Estate Loans 101—Get All the Info You Need

Small Business Loan Request Letter Small Business Real Estate Loans 101—Get All the Info You Need

Small Business Real Estate Loans Explained

Purchasing real estate is not a small investment, but it certainly is a good one as the real estate prices keep going up. The vast majority of business owners are not in a position to invest huge sums of money for a parcel of the desired land, nor do they have means of getting the capital.

If you want to invest but do not have the means to do it, you should look into small business real estate loans. In this article, we will identify the best small business loans for purchasing real estate and:

What Are Small Business Loans?

Small business loans provide owners with capital that can be used on purchasing equipment, covering startup costs, or anything else that they do not have the budget for. Before you decide to apply for one, you should look into different types of loans to find one that best suits your business’s needs.

Small Business Loans for Real Estate

The most important step in borrowing money for real estate is choosing the adequate loan type. One of the best loan options for purchasing real estate is the Small Business Administration (SBA) loans. SBA loans are government-backed loans that help borrowers enjoy lower interest rates and have better terms. The SBA offers two types of loans that are suitable for real estate purchases:

  1. SBA 504 loan
  2. SBA 7(a) loan

SBA 504 Loan

The SBA 504 loan can be used for the construction or purchase of:

  • Existing land or building
  • New facilities
  • Long-term machinery and equipment

You can also use the 504 loan for the improvement of land, streets, parking lots, and more, and you cannot use it for:

  • Working capital
  • Consolidating
  • Repaying debt
  • Investing in rental real estate

This type of loan is available through Certified Development Companies (CDCs) and the SBA’s community partners and banks that regulate non-profit organizations and promote economic development. To qualify for the SBA 504 loan, you must:

  • Have a tangible net worth that is not over $15 million
  • Operate as a for-profit company in the U.S.
  • Have an average net income of less than $5 million after two years upon filing your application and federal taxes

The interest rate for the 504 loan depends mainly on the repayment term. For more details, consult the table below:

Term Interest Rate
10-year 2.4%
20-year 2.35%
25-year 2.41%

SBA 7(a) Loan

The SBA 7(a) loan is the most commonly sought-after program for startups and the best option for real estate purchases. You can also use it for:

  • Increasing working capital
  • Refinancing business debt
  • Purchasing fixtures, furniture, etc.
  • Constructing new buildings or renovating existing ones
  • Establishing a new business or assisting in the acquisition of an existing ones

The biggest amount of money you can borrow through this program is $5 million, which should be enough to cover your expenses. To be eligible for the 7(a) loan, you must:

  • Operate for profit
  • Have a high credit score
  • Be considered a small business
  • Have reasonable invested equity
  • Be engaged in business in the U.S.
  • Demonstrate a need for a loan
  • Use alternative financial resources (e.g., personal assets) before seeking financial assistance
  • Use the funds for a business purpose
  • Not have any existing debt obligations to the U.S. government

Most 7(a) loans can be repaid with monthly payments and interest. The rate is around 2%, and you can require a different payment amount when it changes.

How To Get a Small Business Loan for Real Estate

To apply for a real estate loan, you will need to gather the required documentation and file it with the lending institution. Among the paperwork you need to prepare are:

  • The borrower information form
  • Background and financial statements
  • Business financial statements
  • Ownership and affiliations
  • Loan application history
  • Business license
  • Resumes
  • Income tax returns
  • Business lease
  • Business history and overview
  • Loan request letter

One of the most important documents that you will need to get is the loan request letter. It contains the details about you and your business, and the lender uses it to determine whether to approve your application or not. If you want to ensure that you get a supreme loan request letter, use DoNotPay! We will generate this document for you in no time and make sure it fits your needs perfectly.

Get a Small Business Loan for Real Estate the Easy Way—Use DoNotPay

Why risk getting declined by a lender due to a poorly written request letter? If you do not want to take any chances, subscribe to DoNotPay and let us do all the work for you! Our AI-powered app will help you gather the required paperwork and generate a request letter in a matter of minutes.

All you have to do is follow a few steps:

  1. Find our Business Loan Request Letter tool
  2. Prepare your financial statements
  3. Answer our chatbot’s questions
  4. Upload the gathered documents

Finding a suitable loan provider is often a tedious endeavor, but you should not let that stop you from getting a loan. With our easy-to-use Find Online Business Loan Lender tool, you will get a list of the top three lenders, along with possible loan amounts, terms, and rates.

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