Business Owner Real Estate Financing

Updated: Nov 3

Business Mortgage Loan


Every business needs a place to conduct business. So the question is if you can own why rent. Most of the small business operates in an office, warehouse, or storefront setting. You can purchase commercial real estate for your business while building equity and reducing costs.


In general, there are three options when comes financing for business owner real estate purchase. As long as the business is using over 51% of the space, the lending industry accepts the loan request as owner-occupant.


The lending options are:

1) Bank conventional loan

2) SBA 7(a)

3) SBA 504 CDC loan


Industry type includes the following

  • Assisted Living Facilities

  • Motel, Hotels, and Bed and Breakfast

  • Restaurant

  • Nightclub and Bar

  • Retail stores

  • Business Services

  • Office-based Companies

  • Auto repair shops

  • Auto and RV dealership

  • Car wash facilities

  • Childcare and Preschool

  • Self-storage facilities

  • Gas station or convenience store

  • Importer and wholesaler

  • Medical offices


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Bank conventional loan

The most common type of commercial real estate loans on the market would be bank conventional loan, offered by banks and traditional lending institutions.


Typically, the maximum loan amount will be 80% of the property value. There are bank lenders solely focus on conducting lending to the business operators and not investors. These banks are looking for a business operator deposit in exchange. These banks can reach as high as 80% financing the borrower is responsible for a 20% down payment. The typical loan term is five to 20 years, and the interest rates tend to be low, starting at the prime rate plus 1. Other general banks that conduct business with both investors and as well as a business operator. These lenders tend to only lend up to 65 to 70% of the property value.


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SBA 7(a)


When a business purchase is being combined with a real estate purchase and there is a need to borrow working capital/renovation/equipment a SBA 7a loan may be a better option. All of these can be rolled into one SBA 7(a) loan. 7(a) loan allows a variety of business purposes, including the acquisition and renovation of commercial real estate.


Under the SBA 7(a) program, the loan can go as high as to 85% of the property value, setting a maximum mortgage amount at $5 million. This means that your down payment would end up being around 15% of the purchase price. The commercial real estate loan terms on an SBA 7(a) loan can last as long as 25 years.


SBA 7(a) is a good fit for a start-up businesses that requires profit projection. The loan is allowed to go beyond the value of the real estate. For example, a recycling company in NJ is purchasing real estate for $450,000, our loan is up to 2 million to including equipment purchase and renovation.


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SBA 504 CDC loan


504 loans require multiple lending partners. Typically requires the borrower to contribute 10% equity, CDC (Community Development Company) lend 40%, and the conventional bank lender lends 50% of the project. CDC typically lend at a fixed rate over either a 20 year or 25 years fixed. These rates are typically very low. https://cdcloans.com/lender/504-rate-history/


The conventional bank lender typically will lend on a 5-year term sheet and rolling each 5 years. Rate expects to be prime plus 1 or 1.5%.


This is a low rate and long term loan options. However, the loan requires 2 closings. Typically the bank lender will close on the loan first and follow by a debenture process. Therefore legal cost will be double.


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