Guaranteed Financing for Commercial Real Estate Loans

Small business owners seeking to purchase or renovate commercial real estate may want to consider the U.S. Small Business Administration’s (SBA) 504 Loan Program. This program provides long-term, fixed-rate financing for small businesses to acquire fixed assets, such as real estate or equipment, for expansion or modernization.

The SBA does not actually make loans but instead guarantees re-payment of a loan made by a commercial lender to a small business. For the 504 loan program, loans are delivered by Certified Development Companies (CDCs) — private, non-profit corporations set up to contribute to the economic development of their communities.

To qualify for an SBA loan under the 504 loan or any other program, you must first prove that you were unable to obtain financing through private lenders. Next, you and your business must meet certain requirements. In order to determine eligibility, the lender may examine the following characteristics of you and your business:

• Personal equity investment: Business owners are expected to assume some financial risk; a personal investment in the business makes a more creditable case that the owner will take actions to ensure business profitability. The amount of personal investment is often compared to the overall loan request to determine eligibility for an SBA loan.
• Earnings and cash management: Proof of earnings and cash management can indicate to the lender that the business will have the funds to repay…