SBA 504 Loans for Real Estate Agents

The SBA 504 loan program is designed for small businesses, and enables them to purchase real estate, buy or construct buildings, modernize their facilities, improve energy efficiency, and more. Realtors can take advantage of this government-backed program in a number of ways. One common way to find success as a realtor is to use an SBA 504 loan to build your real estate office. The funds can be used for land, improvements, construction, retrofitting, and more. Additionally, commercial realtors can work with lenders and Certified Development Companies (CDCs) to help small businesses find the funding they need to purchase commercial real estate in the first place.

The SBA 504 loan program offers loans in amounts of up to $5 million, and can be used for land, improvements, construction, retrofitting, and more. It cannot be used to lease anything, nor can it be used as working capital. Other SBA loan options include SBA express loans, which are a variant of the SBA 7(a) loan that can be approved faster, and are offered in amounts of up to $350,000, and SBA microloans, which are loans designed for smaller, startup businesses, and are offered in amounts of up to $50,000.

In order to take out an SBA 504 loan, your business must meet the following eligibility requirements:

• Your business must be a for-profit organization.
• Your business must meet current SBA size standards.
• Your business must have a tangible net worth under $20 million.
• Your business cannot earn 1/3 or more of its income from packaging SBA loans.
• Your business must have an average net income under $6.5 million after federal income taxes for the two years preceding your application.
• Your business cannot be engaged in any sort of passive or speculative activities.

Note that additional requirements may be placed by CDCs or conventional lenders. You can find a full list of eligibility requirements and other important information with the SBA here.

The SBA 504 loan offers several advantages over other types of financing. These include a lower down payment, lower interest rates, and lower fees, depending on the size of the economic development project. Additionally, SBA 504 loans are designed specifically for the purchase of commercial real estate or heavy equipment, and can be used for both owner-occupied and investment properties. The SBA-guaranteed debenture portion of a 504 loan is capped at $5 million ($5.5 million for small manufacturers and energy projects), though total project financing can run higher when the bank's first-lien piece is included, and offer interest rates below market rates that are fixed.

The length of time required for an SBA 504 loan to be approved can vary drastically, but averages between 60 and 90 days. With that being said, it may take up to six months in some situations. There is no hard and fast rule here, and each situation will be unique.

According to SBA Express Loan Closing Times Compared to Other SBA Loans, the estimated closing time for an SBA 504 loan is 45 days, though this process can significantly longer, depending on the individual circumstances.

When applying for an SBA 504 loan, you'll need to provide the CDC and your lender with a very wide range of documentation. The most commonly required documents include:

• Business tax returns for the previous three years
• Personal tax returns for the previous three years
• Personal history statement
• Personal financial statement
• Personal budget analysis
• Business financial statements for the previous three years
• Business debt schedule
• If you are applying for a loan for a hotel or motel, you will need:
• Revenue and expenses breakdown for the past year (month to month)
• Occupancy percentage and average daily rate information for the previous year (month to month)
• Occupancy percentage and average daily rate for the area
• Your hotel projection worksheet
• Interim financial statement (signed and dated, and including balance sheet and income statement dated within the previous two months)
• Accounts receivable aging (dated within the previous two months)
• Accounts payable aging (dated within the previous two months)
• Complete business plan
• One year of financial projections with assumptions
• Purchase agreement
• Written estimate from a contractor if the loan is for construction
• If this is a franchise, you will need a letter of intent from the franchisor and a FUOC and franchise agreement
• If you are buying another business, also include:
• The business owner's tax returns for the previous three years
• Interim finance statement dated within the last 60 days
• Signed purchase agreement with cost breakdown, amendments, etc.
• If you are using gift funds, you will need to provide a gift letter
• Previous government financing schedule
• Environmental impact questionnaire
• Application certification an authorization
• Documents pertaining to the ownership of other businesses and their finances (if applicable)
• Copy of loan agreement and SBA authorization if you have another SBA loan
• If you are refinancing a loan, you will need:
• Copy of the original debt documentation
• Your original purchase agreement, including settlement sheet,

In addition, if the loan proceeds are being used to purchase an existing business, you will also need:

• P&L statement of the business you are buying and an up-to-date balance sheet.
• Income tax returns of the business you are purchasing dating back two years.
• Terms of sale and the proposed bill.
• A list that includes the schedule of inventory, furniture, fixtures, machinery and equipment, and the asking price.

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