The SBA government-guaranteed loan program provides lower down payments, longer repayment terms, and easier qualifying criteria than conventional bank loans. Small businesses may use SBA financing to buy a business, to expand a business, to buy out a business partner, and to purchase or construct a new building for their business.
For real estate to be eligible for SBA financing, it must be owner occupied. Investor real estate is not eligible for SBA financing. Small business real estate is owned and occupied by a small business with operations at that location. Investor real estate is property where a landlord owns the property, and a tenant pays rent for that property.
When financing the purchase of an existing building with an SBA loan, at least 51% of the square feet must be occupied by the small business. When financing new construction with an SBA loan, at least 80% of the square feet must be occupied by the small business.
Some properties, such as self storage facilities, RV parks, and executive office suites, are sometimes classified as investor properties. SBA, however, defines these types of properties as small business properties, and they are eligible for SBA financing. Because these types of property rentals are month to month, and since these businesses provide other services in addition to space rentals, SBA decided owners of these properties are small business owners rather than investor owners.
Examples of other small business properties eligible for SBA financing include: auto repair shops, carwashes, business condos, clinics, hotels, restaurants, preschools, professional offices, assisted living facilities, warehouses, indoor sports facilities, gas stations, convenience stores, and hotels.
Examples of investor properties which are not eligible for SBA financing include: apartments, mobile home parks, multi and single tenant office or warehouse buildings, and property which is purchased or newly constructed for resale.
When seeking financing for owner occupied real estate, it is recommended to work with an SBA lender that has earned the SBA Preferred Lender designation. An experienced SBA lending professional can easily guide you through the SBA eligibility rules, and they can help you structure loan terms which are much more favorable than conventional bank financing.