Key takeaways
- You can get 100% commercial real estate financing with an SBA 7(a) loan.
- To qualify, you'll need great personal and business credit, a significant amount of collateral, and a history of stable and positive cash flow.
- The business must occupy at least 51% of the property in question, and the building must be a general use or multi-use property.
- SBA 7(a) loans can also offer 100% construction financing.
Who Qualifies for 100% SBA 7(a) Commercial Real Estate Financing?
While exact requirements can vary by lender, in general, to achieve 100% CRE financing, a borrower will need:
Great personal and business credit
A significant amount of collateral
Debt service coverage ratio (DSCR) of 1.25x or greater
History of stable and positive cash flow (1.5 years typically required)
The business must occupy at least 51% of the property in question
The building must be a general use or multi-use property (properties with highly specific uses are much riskier for both lenders and the SBA)
100% CRE Financing Does Not Apply to Business Acquisitions
If you want to get an 100% commercial real estate financing with an SBA 7(a) loan, you’ll need to fully own the business already. In order to buy a business and a building, you would need at least 10% down, though 5% of that can come from a seller note.
SBA 7(a) Loans Can Also Offer 100% Construction Financing
SBA 7(a) loans don’t only allow eligible business owners to purchase an existing building with zero down, they can also allow them to build an entirely new structure for their business. However, to achieve 100% construction financing with a 7(a) loan, a borrower will need to have especially strong financials, and their business will have to occupy at least 60% of the finished structure (as opposed to the 51% minimum for property acquisitions.)
What Types of Buildings Are Eligible for 100% Financing?
Other than general and mixed use buildings, which are generally eligible, other eligible building types for 100% SBA 7(a) financing include:
Medical and dental offices and clinics
Office condos
Professional office buildings
Pharmacies
Auto-repair businesses (including tires, muffler repair, and transmission firms)
Pre-schools
Certain fast-food/quick service restaurant buildings
Related questions
What are the requirements for getting 100% financing for a commercial real estate purchase with an SBA 7(a) loan?
In order to get 100% financing for a commercial real estate purchase with an SBA 7(a) loan, you will need:
- Great personal and business credit
- A significant amount of collateral
- Debt service coverage ratio (DSCR) of 1.25x or greater
- History of stable and positive cash flow (1.5 years typically required)
- The business must occupy at least 51% of the property in question
- The building must be a general use or multi-use property (properties with highly specific uses are much riskier for both lenders and the SBA)
Note that 100% CRE financing does not apply to business acquisitions. If you want to buy a business and a building, you would need at least 10% down, though 5% of that can come from a seller note.
What types of commercial real estate properties are eligible for an SBA 7(a) loan?
The SBA 7(a) loan program is available for a variety of commercial real estate properties, including general and mixed use buildings, medical and dental offices, office condos, professional office buildings, pharmacies, auto-repair businesses, pre-schools, and certain fast-food/quick service restaurant buildings.
For more information about the SBA 7(a) loan program, please click here.
What are the advantages of using an SBA 7(a) loan for commercial real estate financing?
The advantages of using an SBA 7(a) loan for commercial real estate financing include:
- SBA 7(a) loans are typically easier to qualify for than other types of loans.
- They can be used for a variety of purposes, including the purchase of commercial real estate.
- They have terms of up to 25 years for real estate, which can make them easier to repay.
According to ReadyCap Lending, real estate loans typically require 10% down and carry terms of up to 25 years.
What are the disadvantages of using an SBA 7(a) loan for commercial real estate financing?
The disadvantages of using an SBA 7(a) loan for commercial real estate financing include:
- Lengthy approval times (for standard SBA 7(a) loans)
- Lots of documentation
- Collateral is often required
- Certain businesses, including real estate investing, lending, gambling, and speculation are prohibited
- High credit scores are typically required (typically 680+)
- May be restrictions on supplemental/additional financing
How long does it take to get approved for an SBA 7(a) loan for commercial real estate financing?
If you are working with a Certified Lender, the SBA can expedite the application process and it will only take three business days. Most terms for SBA 7(a) loans limit repayment to 10 years, and working capital loans are usually restricted to seven years. But the maturity for real estate and construction loans runs up to 25 years.