When you are looking to buy commercial property, the reasons behind it dictate a lot of the moves you make to finance the deal. When you’re planning to occupy a building and use it for your primary business’s operations, the Small Business Administration has a couple of options for you. These options provide small companies, including startups, with an opportunity to access the loan rates and packages usually reserved for their larger competitors because the SBA guarantees a portion of all SBA loans to control the risk to the lender.

The 7a Program: Loans for Commercial Real Estate

Among the many small business loan programs the SBA offers, only one is dedicated solely to commercial real estate purchases. The 7a program can be used to buy factories, retail spaces, warehouses, or even businesses like hotels. It does have limitations, however.

The 7a program is restricted to businesses that are under the SBA’s income ceiling defining a small company. That definition changes periodically, so it is important you check the program as it stands today. It is also limited to purchases of properties you will use for your company, so you can’t use it to finance an investment property for either a flip or long-term rental income.

You can have income-producing outlying lots or secondary storefronts rented to other businesses as long as you occupy the majority of the square footage. For new construction, your occupancy must be at least 60% of the building.

504 Loans for Asset Acquisition

There is another program that can be used for commercial real estate, but the program is broader than that. SBA loans granted under the 504 program are for acquiring one or more business assets. This can be used to get a loan that covers a building and major equipment like freezers or heavy industrial manufacturing pieces. They can also be used to buy multiple pieces of equipment, or for a single asset like a building. If you are starting a business and buying real estate for it, then this might be an ideal choice for financing.

Approval and Down Payment

Regardless of the program you choose, the loan will require a sizable down payment. The amount has been known to change a bit over the years, but 20% is the most common requirement and the one to aim for. You’ll also need a good personal credit score if your company is a new one without its own credit, as well as the traditional loan application requirements like a business plan and financial statements. Approvals must be run by the SBA and lender for SBA loans, so it might take six weeks or a little more to hear back. The good news is that if you meet all the program’s criteria when you apply, approvals are pretty predictable.