Choosing a Federal Loan Program for a Small Business Property

Starting a Business
Choosing a Federal Loan Program for a Small Business Property

Published: March, 2019

Ameris Bank offers three different federal loan programs nationwide for small businesses. Each of the three loan programs has unique benefits for different situations. Following are some of the benefits of each loan program:

SBA 7(a) is a government-guaranteed loan program available up to $5 million per borrower. The SBA 7(a) loan can be used to finance any need the business is facing. Funds may be used for (1) purchase or construction of a new facility, (2) purchase of new business equipment, (3) partner buyout, (4) business acquisition, (5) business expansion, and (6) refinancing existing business debt on more favorable repayment terms. The SBA 7(a) loan program is the most widely used federal loan program for small businesses, because it is versatile to finance all business needs, and because SBA has designated Preferred SBA Lenders who have authority to approve, close and service the loans without a second approval from SBA.

USDA Business & Industry (B&I) is a government-guaranteed loan program available up to $20 million per borrower. This program mirrors the SBA 7(a) loan program, except it is available only for businesses located in rural areas (population less than 50,000). While the USDA B&I loan is flexible in how loan funds may be used by the business, the program is not centralized and efficient like the SBA 7(a) loan program. After bank approval, the USDA B&I loan must be underwritten and approved by a regional USDA office before the bank can close the loan.

SBA 504 is a loan program that provides long-term financing for 30-40% of the project cost with a government-backed debenture that has a below-market, long-term interest rate. The participating bank provides conventional, first-lien financing for 50% of the project cost. Because of the reduced risk resulting from lending only 50% of the borrower’s cost, the bank can offer a more favorable interest rate on its loan. The SBA 504 program is limited to financing only the acquisition of real estate or equipment. Construction financing is not available with the 504 loan program.

In order to be eligible for one of these loan programs, real estate must be primarily occupied by an eligible small business. In general, investor real estate (landlord/tenant) is not eligible for SBA financing. Some businesses, such as self-storage, RV parks, hotels, and antique malls, are traditionally considered investor real estate; however, there is a business management component, beyond landlord responsibilities, that make these eligible small business properties. Other types of small business real estate which often use these federal loan programs include: auto repair shops, assisted living facilities, medical offices and clinics, office/warehouse, carwashes, restaurants, preschools, gas stations and convenience stores, wedding and event venues, indoor sports facilities, professional offices, and warehouse and distribution facilities.

When considering financing to acquire or construct a new facility for a small business, the owner will benefit from discussing the business’ overall financing needs with an experienced SBA/USDA lending professional. A loan applicant should expect a comparison of the features of each loan program in relation to the borrowing needs of the business, so he can make an informed decision to select the federal loan program which best accommodates those needs.

Information presented in the Financial Advice website is provided for educational purposes only and is not related to Ameris Bank's actual products or services. Ameris Bank makes no representations as to the accuracy, completeness or specific suitability of any information presented. Information provided should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. Ameris Bank recommends you consult a professional for any specific guidance you are seeking.