Small business owners want to conserve cash to grow their business. When they need a new facility for business operations, the down payment requirement for traditional bank financing may be too high. A new building or location for the business, however, is sometimes a good investment. An SBA government-guaranteed loan offers lower down payment requirements, longer repayment terms, and easier qualifying criteria than a conventional bank loan. Because the SBA loan is a business loan, and not a traditional real estate mortgage, there are 3 ways the business owner can finance the purchase, or new construction, of small business real estate with as little as 10% down.
- If the small business has a stable cash flow, sufficient to make payments on a loan with 90% of the cost financed, an under secured SBA loan might be approved. Most SBA lenders value real estate collateral at 85% of cost, so a 90% loan is under secured.
- If the small business does not qualify for 90% financing because new income from business expansion will be relied upon for loan payments, the business or its owners may pledge other company or personal assets as additional collateral to help qualify for a lower down payment.
- If the seller of the real estate is willing to carry second lien financing, the small business may be able to lower its down payment requirement in half. With standby financing, the seller agrees to being repaid after the SBA loan is paid first. The seller earns interest on the seller note for a long-term investment.
New startup businesses and single purpose properties often require more than a 10% down payment with SBA financing, but additional collateral or seller standby financing can help achieve a lower down payment requirement with all small business property types. Your Preferred SBA Lender is authorized to approve and process loans on behalf of the U.S. Small Business Administration. We lend bank funds, and we receive a partial government guaranty on the small business loan. This allows SBA borrowers to achieve down payments which average half the down payment requirements with conventional bank financing.