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SBA Financing for Commercial Real Estate Loans

SBA Financing for Commercial Real Estate Loans

August 14, 2023

Small business owners seeking to purchase or renovate commercial real estate may want to consider the U.S. Small Business Administration’s (SBA) 504 Loan Program. This program provides long-term, fixed-rate financing for small businesses to acquire fixed assets, such as real estate or equipment, for expansion or modernization.

The SBA does not actually make loans but instead guarantees re-payment of a loan made by a commercial lender to a small business. For the 504 loan program, loans are delivered by Certified Development Companies (CDCs)—private, non-profit corporations set up to contribute to the economic development of their communities.

To qualify for an SBA loan under the 504 loan or any other program, you must first prove that you were unable to obtain financing through private lenders. Next, you and your business must meet certain requirements. In order to determine eligibility, the lender may examine the following characteristics of you and your business:

  • Personal equity investment: Business owners are expected to assume some financial risk; a personal investment in the business makes a more creditable case that the owner will take actions to ensure business profitability. The amount of personal investment is often compared to the overall loan request to determine eligibility for an SBA loan.

  • Earnings and cash management: Proof of earnings and cash management can indicate to the lender that the business will have the funds to repay the loan. This proof may include monthly cash flow figures for the past year, with revenue, receivables, and bill payments clearly defined. The lender may also want to review projected cash flow charts for the duration of the loan.

  • Working capital: Working capital is defined as a business’s current assets minus its current liabilities. Current assets are considered those that are easily converted to cash, and liabilities are debts and payments that are due over the next twelve months. Basically, this represents a cushion for the owner to continually meet the financial demands for business operations.

  • Collateral: Collateral is property pledged by a borrower to protect the interests of the lender in the event of the borrower’s default. For a commercial loan, collateral can be either assets used in the business, such as equipment, real estate, receivables, and inventory, or other personal property unrelated to the business. If there is more than one owner, the SBA may require a personal guarantee from anyone with a 20% interest in the business.

  • Resource management: Finally, the applicant’s character and background may be assessed to prove the ability to manage the business resources and pay back the loan. The factors taken into account may include education, past business experience, and personal references, as well as the experience and backgrounds of key employees, if applicable.

As you prepare to apply for a loan guaranteed by the SBA, be sure to update your business plan. This multifaceted tool defines your business, outlines your goals, and demonstrates your ability to meet financial obligations and ensure profitability for the business. For more information about the 504 loan program and other SBA financing options, visit


Important Disclosures

Content in this material is for educational and general information only and not intended to provide specific advice or recommendations for any individual or business owner.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by Liberty Publishing, Inc.

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