SBA 7a variable rate - how risky is it?

Private Lending & Conventional Mortgage Advice
1yFollow

SBA 7a variable rate - how risky is it?

Laura CasnerPro Member
New to Real Estate · Knoxville, TN · Member since 2022 · 52 posts · 14 votes

Our landlord is selling the retail property our business just started operating out of and we are considering purchasing it. We are technically a start up since our other location is in another state so we are being quoted a 9-9.5% rate on an SBA 7a loan. Variable interest at prime + 1.5-2% scares me given the macro economic roller coaster we're on.  Anyone have insight on potential other options? The lender I've been working with seems to think 504 would be significantly harder to achieve with a decent close time and a whole lot bigger pain in the ***... BUT... variable rate right now at prime plus 1.5-2%? Is that crazy? 

1Reply
49 views

4 Replies

Jump to latestLatest
  • Denise SuppleeBusiness Member
    Realtor · Willow Grove, PA · Member since 2017 · 1k+ posts · 666 votes
    1y

    A variable rate that high would make me cautious too. If you can, I'd at least get a second opinion from a lender experienced in SBA 504 loans-yes, they can be more paperwork, but the fixed-rate portion can give long-term stability. You might also explore local banks or credit unions that sometimes offer owner-occupied CRE loans with better terms, or even negotiate seller financing to bridge until rates improve.

    Spark Rental Co-Investing Club585 Reviews
    WebsiteView Page
    0Reply
    • Laura CasnerPro Member
      OP
      New to Real Estate · Knoxville, TN · Member since 2022 · 52 posts · 14 votes
      1y
      Quote from @Denise Supplee:

      A variable rate that high would make me cautious too. If you can, I'd at least get a second opinion from a lender experienced in SBA 504 loans-yes, they can be more paperwork, but the fixed-rate portion can give long-term stability. You might also explore local banks or credit unions that sometimes offer owner-occupied CRE loans with better terms, or even negotiate seller financing to bridge until rates improve.

      THank you! I'll look into CRE loans. I haven't heard of those. Bridge is risky to me too because people have been saying rates will improve for years now... I'm not sure that they will significantly in the near future. 
      0Reply
  • Laura CasnerPro Member
    OP
    New to Real Estate · Knoxville, TN · Member since 2022 · 52 posts · 14 votes
    1y
    Quote from @Syed Ahmed:

    That’s a valid concern variable rates can eat into cash flow if the Fed hikes again. I’ve seen other buyers in similar situations compare 7a terms against creative financing, seller carry, or even short-term bridge loans until rates settle. The 504 can be a slower process but it does lock in a fixed portion of the debt which helps with predictability. Feel free to connect if you want to talk through different funding scenarios  I work with a lending company and can share what I’ve seen work in similar deals.


     Thanks ! I"m going to see if I can get a realistic timeline for 504. I'm OK with doing the work, but unsure if the seller will wait for us... There is no chance of seller carry with them. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free