SBA loan can help finance real estate purchase


Are you looking to finance a commercial real estate or industrial equipment purchase for your growing small business?

If so, a specific type of SBA loan may be right for you.

Katherine Culhane, Associate Director for the Florida SBDC

Katherine Culhane, Associate Director for the Florida SBDC at IRSC, consults with businesses to help them achieve their full potential. Her background includes a long career in banking that comprises roles in management, business development, commercial lending and private banking. She has a master of science degree in organizational learning and leadership and is a certified professional behavioral analyst with DISC- Style Insights as well as a senior certified professional with the Society of Human Resources (SHRM).

Katherine Culhane, associate director of the Florida SBDC at Indian River State College, says many small businesses don’t know about — or don’t understand the SBA 504 loan program. This particular loan program provides small business owners the advantage of a lower equity injection, allowing them to preserve more of their existing working capital.

Treasure Coast Business Magazine spoke to Deborah Petrell, senior vice president of sales and marketing manager with Florida First Capital Finance Corp., about ways the 504 loan program may be a good source for growth capital for small businesses. Florida First Capital Finance Corp. is a CDC, or a Certified Development Company, a not-for-profit agent for the SBA for the 504 program for Florida. As the most active CDC in the state and the third-largest in the country, “We specialize in the 504 loan program,” said Petrell. “It’s all we do.”

To be sure, the SBA has a variety of loan programs for small business owners, from business acquisition to export working capital. But the 504 program is specifically for the acquisition of owner occupied commercial real estate as well as industrial equipment.

The way 504 loans are typically structured is that lending institutions are the first mortgage holder and provide 50 percent of the financing; the U.S. Small Business Administration (with Florida First Capital) finances 40 percent at below market rates, and the small business owner injects 10 percent.

Banks like to make the loans because they reduce their risk, and small businesses preserve precious growth capital because they put in 10 percent rather than the typical 20 percent. Another advantage is that the business borrower is mitigating interest rate risk by doing 40 percent fixed for the life of the loan at below market rates, Petrell said.

504 lending has been on the increase over the last year, Petrell said.

Florida First Capital Finance Corp. made 303 loans in CY 2019, representing more than $274 million in SBA dollars representing more than a $759 million capital investment in real estate and equipment.
The vast majority of those loans were for owner occupied commercial real estate. That’s because every business needs a place to operate but not necessarily industrial equipment, she said, and “the SBA 504 Program is most commonly associated with real estate and many lenders aren’t aware that we’re able to finance equipment.”

So let’s get down to basics:
Will my small business qualify?

The loans typically are available to for-profit, credit worthy businesses, with a tangible net worth of not more than $15 million and average net income after taxes for the preceding two fiscal years of not more than $5 million.

How can I use the funds?
For real estate loans, funds can be used for the acquisition of land and existing buildings, expansion and renovation, including parking lots and landscaping, and green energy initiatives. For machinery: Long-life fixed machinery and equipment.

A 504 loan cannot be used for working capital or inventory, goodwill assets, business stock acquisition and franchise feels.

What are the loan amounts and repayment terms?

For real estate loans, the SBA portion is capped at $5 million but there is no limit on project size. For example, Florida First’s largest project was a $20.5 million construction project. The limits are higher for energy efficient projects. For equipment, the SBA cap is $5.5 million per eligible project. Terms: below market, fixed interest rates with 10-, 20- and 25-year terms.

For real estate, this is all-in project financing, covering remodeling, fixtures, furniture, closing costs etc. In 2019, the Florida First office was doing 25-year fixed real estate loans at an effective rate of 3.582 percent. The business must be at least 51% occupied by the small business owner.

For industrial equipment, loans are typically north of $500,000; large medical, manufacturing or printing equipment is typical. The office recently did a $4 million loan for a glass manufacturer. In March, the 10-year-rate was available at 4.62% interest rate.

Yes, but don’t SBA loans take a long time?
Petrell says closing timelines are 60 to 90 days from when the necessary documentation is received, similar to conventional lending. “There is a misconception that SBA loans take forever — that’s not the case. Our average closing is 75 days.”

“The objective of the 504 is economic development and job creation. There are situations where the borrower has the 20% to go with conventional [financing] but injecting all that capital would restrict them from future growth and hiring,” Petrell said. “It’s important to give the small business owner the option of the SBA loan.”

For more information on SBA 504 loans, go to

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