Business Loans
A Guide To Small Business Loans For Minorities
Real estate and construction are two of the most expensive costs of being a small business owner. Whether you're building a business from the ground up or expanding operations, you're going to need money before you start making money-and a lot of it.
Fortunately, there's financing available to fund hefty expenses like these. You might be thinking a commercial mortgage (or commercial real estate loan) is your best bet, and you're not far off. A commercial mortgage is an excellent way to finance purchasing, building, or renovating-but there's one better: an SBA loan.
The Small Business Administration (SBA) offers various government-backed loans to provide small businesses with top-notch funding. The government doesn't do the actual lending-they just guarantee up to 85% of the funds to mitigate risk to lenders.
While SBA loans and commercial mortgages can be used in quite a few of the same ways, SBA loans have a slight advantage, especially when it comes to financing a major purchase like real estate development and construction.
Here's why SBA loans are your best option:
Because the government guarantees these loans, lenders are willing to lend larger amounts to small businesses. You'll still need a great credit score and usually at least two years in business to qualify, but then you'll be in a much better position to secure top-notch financing.
SBA loans can be used on various real estate expenses. Here are a few ways you can use these loans to finance your big-time land and construction purchases:
Thanks to SBA loan's long repayment terms and large lending amounts, they're perfect for financing expensive real estate and construction costs. Everything from the repayment terms to the interest rates helps reduce your monthly payments, so these hefty expenses don't eat too much out of your working capital.
SBA 7(a) loans are the most popular type of SBA loan. They cover the most extensive list of costs and have a maximum loan amount of up to $5 million. Repayment terms can be as long as 25 years for real estate loans.
The average minimum credit score requirement is 640 with a 10-30% down payment. Most SBA 7(a) loans require collateral, but your real estate purchases can almost always double as collateral, too.
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SBA Express loans are exactly what they sound like-fast loans. These loans have lower loan maximums (up to $500,00) and shorter repayment terms. Plus, the government usually only guarantees up to 50% of these loans.
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CDC 504 loans are funded by two separate lenders: a lender (bank, credit union, alternative lender) and a Certified Development Corporation (CDC). Both of these lenders will bring different terms, fees, and rates to the table, and these combined will be your terms for your 504 loan.
These loans have maturity rates of up to 25 years and loan maximums of up to $5.5 million. You'll usually only need a 10% down payment on 504 loans, which makes them a much better choice for businesses who might not be able to afford 20-30% of an SBA 7(a) loan's down payment.
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