What is a Small Business Loan?
SBA government-guaranteed loans are small business loans with partial government guaranties
from the U.S. Small Business Administration. SBA loans are offered by state and nationally chartered
banks and credit unions, as well as by a handful of licensed, non-bank SBA lenders. Since they are
available to small businesses in amounts up to $5 million per borrower, they are a great way to
finance real estate for your small business.
The participating lender provides loan funds from their own assets. In the case of depository
institutions, they are lending out their depositors’ money. In the case of licensed, non-bank SBA
lenders, they are lending out investors’ money. Both types of lenders can offer more leeway on their
credit decisions for small business borrowers requesting SBA loans, due to the partial government
guaranty which reduces the lending risk for their depositors and investors. For the small business
borrower, this usually means lower down payments, longer repayment terms, and easier qualifying
criteria than they will receive from conventional bank financing.
Small Business Real Estate
Whether you are looking into options for financing real estate for your new
venture or refinancing your family business, a small business loan from
Members Choice Credit Union may be the right choice for you.
What types of real estate projects can I
finance with a small business loan?
An eligible small business “real estate” loan request includes financing for the following types of projects:
• Purchase real estate to be used and occupied by the small business, as long as the business occupies at
least 51% of the square footage under roof.
• Funds to remodel or expand an existing small business facility, as long as the business occupies at least
60% of the proposed square footage under roof.
• Funds to buy land and construct a new small business facility. The small business must occupy at least
60% of the proposed square footage under roof.
Why should I use a small business loan for
SBA loans are really attractive for small business real estate financing for many reasons, some of which
• Real estate is eligible for a 25 year permanent mortgage with SBA financing. Banks are typically short-
term lenders for small business real estate. Short term loans, that require refinancing on a periodic
basis, will expose the small business to renewal risk. The small business will face potential problems
each time they reach renewal time. Will the small business qualify for refinancing at renewal time?
Financing Small Business Real Estate with
an SBA Loan
• Who will own and who will be controlling management of the bank at that time? Will their credit
criteria have changed? What will be the state of the economy and the small business?
• SBA real estate loans can sometimes be structured and qualified with only 10% down. The typical
down payment for conventional bank real estate financing is 25%-30%.
• Since an SBA real estate loan is a small business loan, the SBA does not limit the use of loan proceeds
to real estate. If the business needs funds for new equipment, for moving costs, or for other business
expansion needs, those funds can be included in the SBA real estate loan. As long as over half of the
loan proceeds are designated for real estate, the eligible SBA loan term is 25 years. If less than half the
loan proceeds are designated for real estate, the eligible loan term is 10 years.
• SBA lenders can provide interim construction financing as part of the same loan as the permanent
financing. Enough time (usually 9 months) is allocated for the construction, and the small business
has no payment requirements during construction. SBA lenders understand that small businesses are
usually still paying rent or building up a new business during the construction period, and they do not
want to strain the business cash flow with payments required before the building is completed. Interest
that accrues during construction is treated as part of the construction costs, which are funded by the
In summary, SBA “real estate” loans are actually “long-term small business” loans
available for any legitimate business spending category. They provide lower down
payments, longer repayment terms, and easier qualifying criteria than conventional bank
financing. SBA loans allow small businesses to take advantage of growth opportunities
in earlier stages of business development than a conventional bank lender can, due to
the partial government backing on the loan. The multiple eligible uses of loan proceeds,
along with the more liberal underwriting criteria, make the SBA loan program a most
versatile financing option for small businesses with growth opportunities.
Refinancing Small Business Real Estate
with an SBA Loan
Were you a small business owner who felt the pinch in your business a few years back? Did you
own your small business real estate with equity you used to borrow against to help you through the
crunch times? Perhaps your lender felt the need to lend you the funds to keep afloat, because of their
existing investment in your business with other loans. Perhaps they felt that being out on the limb with
you meant staying the course as long as you could provide collateral with equity for borrowing the
additional funds. You invested in the ownership of your small business property, so you could build
equity for your retirement. You never thought you would have to tap that equity to save your business,
but 2009 and 2010 happened, and your business came to a standstill with the economic times. You bit
the bullet, and you borrowed against that equity to save and grow your company during times when
you needed more working capital in the company. Your lender was not exactly accommodating with
a good rate or long repayment terms, but the cash was what you needed to keep your small business
The imaginative story above represents just one situation where a small business owner found himself
with onerous monthly payments on his small business property. The story could have been one where
the factors were all very positive for the growth and enhancement of the company, yet the company
accepted a short term repayment program, or a higher interest rate, because it was the easiest capital to
access quickly. When the business recognized the benefits it can experience from lower payments and
longer repayment terms, SBA financing became attractive. SBA financing may also appear attractive
to the small business owner whose short-term real estate loan comes due on a balloon balance with
their bank. Banks by nature are short term lenders, and they typically style their repayment terms to
include a balloon balance owing after the loan matures in three years or five years. To the small business
borrower, the balloon feature represents loan renewal risk. The small business owner does not know
who will own the bank, who will be in charge of management of the bank, the state of the economy, or
the interim condition of the business at the time the balloon balance comes due and ready for renewal.
They don’t know for sure whether the bank will renew the loan.
SBA Loans: Refinancing the Right Way
With SBA loans, if over half of the loan proceeds were originally used to purchase or renovate real estate,
the SBA loan is eligible for a 25 year repayment term. The SBA real estate loan is a permanent mortgage
with no balloon balances or loan renewal risk. In addition to financing or refinancing small business real
estate costs, the 25 year SBA real estate loan can also provide funds for working capital, new business
equipment, renovations, or business expansion. An SBA loan can be a very versatile small business real
The primary mandate for an SBA lender contemplating refinancing of small business real estate loans is
that SBA requires the lender to provide a lower interest rate and/or longer repayment terms such that
the small business borrower can lower their payments by at least 10%. The savings in the loan payment
is considered a method for freeing up working capital to grow the business, and that causes the SBA loan
request to be eligible in accordance with refinancing guidelines.
For whatever reason the small business owner wants to stretch out their loan terms and lower their
payments, the SBA loan program can be a good option. In general, SBA loans offer small businesses with
lower down payments, longer repayment terms, and easier qualifying criteria than conventional bank
loans. A small business borrower that maintains healthy deposit balances and has a long track record with
their banker may not need SBA financing, but it is still a great option for many. Unfortunately, in a time
where more big banks are taking over the small community banks, accommodations for small business
financing becomes more and more challenging. It is much easier for the big banks to accommodate middle
market and public companies. The SBA loan program continues to be a lifeline for many small businesses.
Equipped with all of this knowledge about small business loans for real estate, you are now prepared to
make the best financing decision for your small business.
About Bruce Hurta
Bruce Hurta has extensive experience in Small Business Lending. He served in a number of
commercial lending and banking capacities in his career including President of a Houston-area
community bank for 6 years. Bruce also established and managed the Houston office for a non-bank
small business lending company where he specialized in SBA lending for 14 years.
Bruce spent 4 years as a bank examiner for the Texas Banking Department, 7 years in executive
management at two community banks, and 18 years as a specialty SBA Lender. He is active in the
commercial realtor and business brokerage communities, along with various business and industry
organizations. Bruce is the 2013 president of the Houston Association of Government Guaranteed
In July 2009, he joined Members Choice Credit Union as the Business Lending Manager to lead their
new SBA Lending Program.
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