Advantages of SBA Construction Loans for Small Businesses

Growing Your Business
Advantages of SBA Construction Loans for Small Businesses

When a small business owner decides that the business needs to own a newer, larger, or better facility for their operation, they have two choices. Should the business buy an existing property, or should a new one be constructed to specifically meet all the business’ needs? An existing facility can be available immediately after minor updates and modifications; however, new construction adds a host of factors that increases the time until occupancy, as well as variables that increase risk to the business owner. The owner will need to find suitable land to build, a qualified contractor to complete the construction, an architect to design it and obtain proper permits, as well as a lender that is friendly to the construction loan process.

The typical bank financing scenario includes one loan for the interim construction, and then another loan for the permanent or semi-permanent financing. With an SBA government-guaranteed loan, the business owner can finance both the interim construction and the permanent financing in one loan transaction, with only one loan approval process, one loan closing, and one set of loan closing costs. Other advantages of working with a Preferred SBA Lender include:
Long term financing for 25 years.
No payment requirements until the construction is completed.
The ability to include other small business financing needs, beside the construction cost, in the same loan.
The down payment requirement is usually about half of the down payment requirement for traditional bank financing.
The SBA lender will have a contractor qualification process and an inspection process for funding progress payments to the contractor.

SBA loans are available for construction financing up to $5 million per borrower. When a business owner decides the extra effort is worth the advantages of owning a brand new building, specifically designed to meet the business’ needs, an SBA loan might be the answer.

Reviewed July 2023

All loans subject to credit approval.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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