All Forum Posts by: Pat Pindelski

Quote from @Pat Pindelski:

Can a SBA 7a loan be used for ground up construction of a vacation rental property? If not is there something similar that can be?

Hi Pat!

SBA 7(a) loans cannot be used for the construction of a vacation rental property as they are not available for rental properties in general. The program specifically prohibits the use of funds for investment properties and is designed to fund only real estate that is owner-occupied, with the only exception being for businesses that offer medical services. While the SBA 7(a) program does allow for the acquisition, expansion, or construction of commercial real estate, the key is that it must be owner-occupied. For instance, at least 51% of an existing property and 60% of new construction must be owner-occupied to qualify for the loan​​​.

For purposes like constructing a vacation rental property, which is considered an investment property, you would need to look at alternative financing options outside of the SBA 7(a) program. This could include traditional bank loans, real estate investment loans, or potentially looking into the SBA 504 loan program, which is more focused on real estate and equipment purchases for small businesses and might offer some leeway depending on the specifics of the project and how the loan is structured. However, it's important to note that SBA 504 loans also have occupancy requirements and are not typically used for rental property investments either.

Hope that helps.
KC