Business owners commonly use conventional commercial loans, SBA 7(a) loans, or SBA 504 loans to purchase owner-occupied real estate.
Conventional commercial loans
Conventional loans may work well for established businesses with strong cash flow, good credit, and sufficient equity.
These loans may require:
- A larger down payment
- A shorter repayment term
- A balloon payment
- Personal guarantees
- Ongoing financial reporting
SBA 7(a) loans
SBA 7(a) financing can be used for eligible commercial real estate purchases and may also include working capital, equipment, renovations, or business acquisition costs.
This flexibility can be helpful when the transaction involves more than the property alone.
SBA 504 loans
SBA 504 financing is primarily designed for major fixed assets, including commercial real estate and long-term equipment.
A typical 504 structure includes financing from a bank, financing through a Certified Development Company, and a borrower equity contribution.
Which option is best?
The right structure depends on:
- The property
- The business’s cash flow
- Available down payment
- Additional working-capital needs
- Desired loan term
- Borrower qualifications
Borrowers should compare the total structure, not only the interest rate.
Next: How lenders decide whether a business qualifies.
This series is provided for general educational purposes and does not constitute a loan commitment, legal advice, tax advice, or a guarantee of approval.
