Published: November, 2018
Securing financing for single-purpose real estate, like a restaurant, can be more difficult than you think. Read on to find out why, and how an SBA loan can come through for you even if another lender says, “No”.
Financing for Single-Purpose Commercial Real Estate Small business owners sometimes face challenges financing single-purpose (or special-purpose) real estate to operate their businesses. Due to limits on the marketability and value of single-purpose real estate as collateral, lenders are often hesitant to finance these types of loans. So what’s a small business owner to do?
SBA Loans for Commercial Real Estate Luckily, there are SBA loans. Since an SBA loan is classified as a business loan (rather than a real estate loan) the lender tends to rely upon the financial performance of the business and the credentials of its owners more than it relies upon the value of the collateral.
While valuable collateral can always help in approval, it is by no means required. The U.S. Small Business Administration makes it very clear that the SBA loan program is not a collateral-driven program. Therefore, you can sometimes get an SBA loan with no collateral.
Fidelity Bank has helped countless small businesses secure SBA loans for single-purpose commercial real estate. Some of these types of properties include:
Hotels
Preschool and childcare facilities
Gas stations, truck stops and convenience stores
Restaurants
Car washes
Assisted living and nursing facilities
Skating, bowling and other entertainment venues
Campgrounds and RV parks
Self-storage facilities
Auto repair shops
Benefits of SBA Loans for Single-Purpose Small Businesses SBA loans provide:
Lower down payments (sometimes as low as 10%)
Longer repayment terms
Easier qualifying criteria than conventional bank loans
Benefits of Real Estate Ownership The small business owner, who might have been precluded from real estate ownership due to more restrictive guidelines, can now enjoy the benefits of real estate ownership. These benefits can include:
Avoiding the uncertainty of future rent increases or lease non-renewal
Benefiting from increased value through property improvements
Building equity instead of paying rent
The possibility for future rental income
In the final analysis, an SBA loan will be approved based upon evaluating the following five criteria:
Business cash flow
Business owners management experience
Business and owners credit record
Amount of owners’ equity in the business
Collateral offered for the loan
As you can see, collateral is just one of five factors used when evaluating an SBA loan and is only a consideration, not a requirement. Your previous success, business acumen and track record make up a large portion of the criteria. Because of this, the SBA lender can often accomplish loans which conventional bank lenders might not be able to offer.