Small Business Loans for Real Estate Agents
In 2017, over 6 million homes were sold across the United States, and nearly 90% of sellers used a real estate agent to help them through the process. Right now, there are over 2 million Americans with active real estate licenses, and over 1.3 million members of the National Association of Realtors
This is because 7(a) loans can be are incredibly flexible, and can used for working capital, equipment, and owner-occupied commercial real estate. SBA 7(a) loans for working capital and equipment have terms of up to 10 years, while SBA 7(a) loans for commercial real estate loans have terms of up to 25 years.
How Real Estate Agents Can Use SBA 7(a) Loans
Real estate agents can use SBA 7(a) loans in a number of ways.
Buying or Maintaining a Vehicle
Since real estate agents usually need to travel on a daily basis to meet with clients and show properties, an SBA 7(a) loan can be a great way to fund the purchase or repair of a business vehicle.
Refinancing Business Debt
If you’ve taken out a small business loan to fund your business, and the debt is currently on unreasonable terms (i.e. abnormally high interest rates or fees), you may be able to use an SBA 7(a) loan to refinance it.
Expanding a Real Estate Brokerage
If you need to hire new employees or expand your marketing efforts, SBA 7(a) loans are a great choice.
Using an SBA 504 Loan
The SBA 7(a) loan is often the best type of SBA financing for independent real estate agents and small to mid-size brokerages. However, if you run a larger brokerage that has some larger real estate needs — say, to acquire (or even build) a new headquarters, an SBA 504 loan could be a better option. SBA 504 loans are intended for the purchase and construction of owner-occupied commercial real estate, not working capital, and are typically offered at much lower interest rates than 7(a) loans.
Case Study: Building a Brokerage in Indianapolis
Brad, an experienced real estate agent in Indianapolis, decided it was time to take his career to the next level by establishing his own independent brokerage. With his vast knowledge of the local market and a strong client base, Brad knew that he could create a successful business by offering personalized service and expert guidance to his clients.
To set up his new brokerage, Brad needed funds to cover the costs of office space, marketing materials, and technology infrastructure, as well as working capital to keep the business running smoothly during its initial stages. He determined that an SBA 7(a) loan would be the ideal solution for his financial needs.
Brad applied for an SBA 7(a) loan and requested a loan amount of $250,000. Upon approval, he used the funds to lease a prime office location, purchase essential equipment, create a compelling brand identity, and invest in digital marketing efforts to generate leads and grow his client base.
With the support of the SBA 7(a) loan, Brad was able to successfully establish his independent brokerage, providing outstanding service to his clients and creating a sustainable business model that continued to flourish in the competitive Indianapolis real estate market.
This is a fictional case study provided for illustrative purposes.
What types of small business loans are available for real estate agents?
Real estate agents can use SBA 7(a) loans for buying or maintaining a vehicle, refinancing business debt, and expanding a real estate brokerage. SBA 7(a) loans for working capital and equipment have terms of up to 10 years, while SBA 7(a) loans for commercial real estate loans have terms of up to 25 years.
If you run a larger brokerage that wants to use an SBA loan to purchase (or even build) a new headquarters, an SBA 504 loan could be a superior option. SBA 504 loans are intended for the purchase and construction of owner-occupied commercial real estate, not working capital, and are typically offered at much lower interest rates than 7(a) loans.
Other SBA loan options include SBA express loans and SBA microloans. SBA express loans are a variant of the SBA 7(a) loan that can be approved faster. These loans are offered in amounts of up to $350,000. In comparison, microloans are loans designed for smaller, startup businesses, and are offered in amounts of up to $50,000.
What are the eligibility requirements for small business loans for real estate agents?
In order to qualify for an SBA 504 loan, businesses must meet a strict set of eligibility requirements:
- Must be a for-profit entity
- Must be able to pay the loan agreement in a time frame based on the company’s projected operating cash flow
- Must not have funds available from other sources
- Business must be located in and operate within the United States and/or U.S. territories
- Must not invest or speculate, or be in the business of owning rental real estate for profit
- Must have a tangible net worth of less than $15 million and an average net income of less than $5 million after taxes for the preceding two years
- Must have a feasible business strategy
- Proceeds must be used for purposes approved by the SBA, which include:
- Purchasing land or existing buildings
- Improvements to property such as utilities, parking lots, street enhancements, and landscaping
- Constructing new facilities or modernizing/renovating existing facilities
- Buying machinery and equipment for long-term use
- Must not use proceeds for any of the following:
- Operating capital or inventory
- Funding for other debts (refinancing, consolidating, or repaying)
- Your business must be an eligible business as determined by the SBA including (but not limited to):
- Hotels or motels
- Assisted living or nursing facilities
- Grocery stores
- Health care centers
- Schools or daycares
- Insurance offices
- Medical or dental offices or veterinary clinics
- Industrial or manufacturing plants
- Auto dealerships or repair centers
- Car washes or gas stations
- Fitness centers
- Convenience stores
In addition, the prospective borrower applicants must:
- Have been in business for a minimum of two years
- Have a credit score of at least 680
- Be looking to finance at least $125,000
What are the advantages of taking out a small business loan for real estate agents?
Real estate agents can take advantage of the Small Business Administration's (SBA) loan programs to help fund their business. The two most common loan programs are the SBA 7(a) loan and the SBA 504 loan. Both of these loan programs offer a number of advantages for real estate agents.
The SBA 7(a) loan is the most commonly used loan program and is incredibly flexible. It can be used for working capital, equipment, and owner-occupied commercial real estate. SBA 7(a) loans for working capital and equipment have terms of up to 10 years, while SBA 7(a) loans for commercial real estate loans have terms of up to 25 years. Real estate agents can use SBA 7(a) loans for buying or maintaining a vehicle, refinancing business debt, and expanding a real estate brokerage.
The SBA 504 loan is intended for the purchase and construction of owner-occupied commercial real estate. It is typically offered at much lower interest rates than 7(a) loans. This loan program can be used to build your real estate office, purchase commercial real estate, modernize facilities, improve energy efficiency, and more.
What are the risks associated with taking out a small business loan for real estate agents?
The risks associated with taking out a small business loan for real estate agents include the possibility of monthly payments increasing significantly at the end of the interest-only period when you are required to start paying both principal and interest. Additionally, if the property’s value decreases, you could find yourself underwater on your loan – owing more than the property is worth. Before taking out a loan, be sure to speak with a qualified commercial real estate broker to discuss all of the risks and benefits associated with this type of financing. Source
How can real estate agents use a small business loan to grow their business?
Real estate agents can use a Small Business Administration (SBA) 7(a) loan to purchase real estate, buy or construct buildings, modernize their facilities, improve energy efficiency, and more. The funds can be used for land, improvements, construction, retrofitting, and more. Additionally, realtors can use the loan to help small businesses find the funding they need to purchase commercial real estate in the first place. This allows them to overcome one of the largest hurdles their clients face – the financing portion of bringing their dream business to life.
For more information on SBA 7(a) loans, please visit https://www.sba7a.loans/sba-7a-loans-small-business-blog/how-do-commercial-real-estate-loans-work.