Real Estate Broker · Boston, MA · Member since 2015 · 57 posts · 11 votes
Good Day Bigger Pockets,
I hope this finds you well. recently while meeting with my bank I learned more about the SBA 504 loan. It sounds fantastic, perfect for business owners and investors. It works like this;
If you have a business you can purchase a commercial property with only 10% down! Limited to 3 Mill, however there are exceptions. You do have to maintain one of the units as your business in order to qualify. Investors can get away with creating a llc to run their business or a new business out of the space as well. Property must be occupied with a strong rent roll as that is used for qualifying. If property is vacant, your businesses finances must demonstrate an ability to pay.
This is a great program none the less, there are a few restrictions with what kinds of businesses but a 10 unit building with a commercial space can be an amazing investment for many people. Unfortunately in my market (Greater Boston area) Commercial Real Estate is at an all time high.
@Rion Manita, interesting find, I had not heard of this before. I did find this eligibility requirement on their site though: "Loans cannot be made to businesses engaged in speculation or investment in rental real estate." Specifically, the following type of business is ineligible, "Real estate investment firms when the loan is used for investment purposes."
There may be a loop hole as to what qualifies as an investment purpose though - perhaps this is satisfied as you stated by running your business out of one of the units. Have you heard of any specific scenarios where real estate investors were able to utilize this loan?
Edit: Also I found this caveat, "Generally, your business must create or retain one job for every $65,000 provided by the SBA, except for small manufacturers, which have a $100,000 job creation or retention goal"
Thank you for your response. Excellent research, for me and some of my clients it works because I have a second business in project management, which fortunately qualifies. There are some industries they won't lend to, investment firm as one of them. But creating a new business that the space could utilize may be a solution. Property management is also an industry they won't consider. But they will consider many industries. I believe the job creation is a goal but not necessarily a requirement.
Absolutely, the prices are sky high here. Leaving room for personal investment growth in other areas and possibly other states. Question is which other states and cities :)
I work in SBA lending and like all lending there are many caveats. Another one to mention is, SBA loans are for owner occupied commercial real estate only. This means the building must be occupied at least 51% by the borrowing business to qualify for SBA lending. My bank lends nationwide on CRE with SBA loans and I could help you more with any questions you have. Feel free to reach out to me.