Getting an SBA commercial real estate loan through traditional channels is a tedious process that can take 3 months or longer. However, with SmartBiz, borrowers can apply online and get SBA commercial real estate loans in about half that time. That is why we chose SmartBiz as the best commercial real estate loan provider for small business owners.
With 25-year terms and interest rates starting at 6.25 %, SBA loans through SmartBiz are a great option for small businesses looking to buy an office building or other owner-occupied commercial space.
In this article, we’ll explain the following:
- Why We Chose SmartBiz as the Best Commercial Real Estate Loan Provider
- How Commercial Real Estate Loans Work and the Benefits of Buying Commercial Real Estate
- What You Need to Qualify for a SmartBiz SBA Commercial Real Estate Loan
- SmartBiz Commercial Real Estate SBA Loan Terms
- SmartBiz SBA Loan Application Process and Timeline
SmartBiz Commercial Real Estate SBA Loans – At a Glance
|Type of Loan||SBA 7a Loan|
|Loan Amounts||$100,000 to $5 million|
|Loan Interest Rate||Currently 6.25 % (Variable rate of Prime plus 2.75 %)|
|Repayment Term||25 years (fully amortizing loans - no balloon payments)|
|Prepayment Penalties||None after the first 3 years|
Why We Chose SmartBiz as the Best Commercial Real Estate Loan Provider
Normally at Fit Small Business, when we recommend a specific product or services, there’s a comparison of three or four options. However, in this case, SmartBiz is the only online SBA loan provider we’ve found that provides commercial real estate loans nationally, quickly, and offers competitive rates.
Here are the main benefits of applying for a commercial real estate loan through SmartBiz:
- It’s faster! While it can normally take 3 to 4 months to get an SBA commercial real estate loan, the process typically takes less than 2 months through SmartBiz.
- Low 6.25 % interest rate (loans have a variable rate of Prime + 2.75 %)
- 25 year repayment term means low monthly payments
- Fully amortizing loans (no balloon payments). When the loan is paid off, you own the real estate free and clear.
- No prepayment penalties after the first 3 years (most conventional loans have prepayment penalties throughout the term of the loan that decrease as the loan’s maturity date gets closer)
One of the reasons we chose SmartBiz as the best commercial real estate loan provider is because of the flexibility it offers. “SmartBiz SBA loans are great for first-time buyers of commercial real estate and for small business owners looking to refinance a conventional commercial mortgage,” says Aleks Flom, Director of Business Development at SmartBiz. Many small businesses currently hold commercial mortgages that have balloon payments, high interest rates, or short terms. All of these can put your small business in a cash crunch. Flom says that SmartBiz has been able to help many small business owners free up capital by refinancing them into a lower-rate, fully amortizing SBA loan.
How Commercial Real Estate Loans Work
There are several places that you can go to get a commercial real estate loan. The options differ based on whether you’re buying owner-occupied real estate or investment real estate. This article focuses on owner-occupied property because it is the most common type of real estate purchased by small business owners.
That being said, investment properties that generate rental income can be very lucrative. If you’re interested in buying a shopping mall, hotel, or other investment property, click here. We also have a guide to fix and flip loans for those of you interested in investing in residential real estate.
For owner-occupied commercial real estate, a small business has three main financing options:
- SBA loans
- Conventional bank loans
- Hard money loans
Out of these options, many borrowers opt for SBA loans because they have the longest terms and lowest interest rates. There are two types of SBA loans that can be used for buying commercial real estate. The SBA 504 loan is designed specifically for real estate and equipment, and the SBA 7a loan is a general purpose loan that can be used for real estate.
SmartBiz offers the 7a loan. 7a loans typically have slightly higher interest rates than 504 loans but are much quicker and easier to get, especially for smaller loan sizes.
Benefits of Getting a Commercial Real Estate Loan
Whether you get a commercial real estate loan through our recommended SBA loan provider SmartBiz, your local bank, or somewhere else, there are a lot of benefits to buying commercial real estate. It is an untapped but excellent opportunity for many small business owners.
Small business owners often pay thousands of dollars each month to rent their business space and don’t think about buying, but investing in real estate can create business and financial stability. If you are on a five year or ten year lease right now, your rent could increase significantly upon renewal, which could eat up a chunk of your business’ revenues. Rent hikes after lease renewals, says Flom, have forced a lot of small businesses to close shop. When you purchase your business’ office building or land, you don’t have to worry about that happening.
Owning the property that your business occupies also gives you an income-bearing asset. Many small business owners, when they decide to retire, sell their business. If the sale includes real estate, your business may be worth a lot more. In lieu of selling, you may also be able to rent out the commercial real estate and make rental income to help take you through retirement.
Lastly, there may be tax benefits to owning commercial real estate. Often times, a small business owner will create a separate LLC or Corporation to own the real estate. The business will pay rent to the LLC or Corporation and write off the rent as a tax deduction. The LLC or Corporation, in turn, can write off the interest it is paying on the commercial real estate loan. We recommend talking to a tax professional for more details about this arrangement.
What You Need to Qualify for a SmartBiz SBA Commercial Real Estate Loan
In general, you’ll need to meet the following requirements to qualify for an SBA commercial real estate loan with SmartBiz:
- Personal credit score of at least 675 (check credit score for free at Nav)
- Liquid credit score of at least 160 (your liquid credit score, also called your SBSS Score for Small Business Scoring Service, is a combination of business and personal credit. You can find out your SBSS score here)
- The property you’re buying must be majority owner-occupied
- Your business must have been operating for at least 3 years
- The business must be financially strong with positive cash flow
- Down payment of 15% or more
“Ultimately, we want to make sure the business can afford to pay back the loan,” says Flom. “This means you should have a positive credit history, and your business should be well established and profitable.” It’s very difficult to get a commercial real estate loan for a startup because the business hasn’t built up a track record yet, though you may have luck with your local bank.
One qualification requirement that’s often misunderstood is that the real estate should be majority owner-occupied. Flom says this simply means that at least 51 % of the square footage of the property you’re buying must be occupied by and used by your business. For example, if you buy a three story building and rent out two of the floors, that wouldn’t be suitable for an SBA loan.
If your property isn’t owner-occupied, then you’ll have to opt for a traditional bank loan or hard money loan. These typically have higher interest rates than an SBA loan. This isn’t to say that an investment property is a bad idea. The rental income you generate could be used to pay off higher-rate financing. Read our article on Commercial Real Estate Loans: How to Get a Loan for Income-Producing Property to get more details on options for non-owner occupied property.
SmartBiz SBA Commercial Real Estate Loan Terms
We chose SmartBiz as the best commercial real estate loan provider because they provide low-interest rate, long-term loans with favorable terms for borrowers.
The maximum amount of money you can borrow with a SmartBiz SBA loan is $5 million, and the minimum is $100,000. A major benefit of applying through SmartBiz is they consider smaller projects. Banks often give preference to larger projects over $1 million.
The cash flow of the business and the amount of debt it can support are the main factors determining how much money you’ll be approved to borrow. The value of the real estate also limits the amount of money you can borrow. The maximum loan-to-value (LTV) is generally 85 % for a SmartBiz SBA loan. This means that if you’re buying property that’s worth $500,000, the maximum loan size is $425,000. On occasion, you can get the loan extended up to 90 % LTV if you provide additional collateral.
Interest Rates & Fees
SmartBiz SBA loans are variable rate loans with a rate of Prime + 2.75 %. Prime is a market rate that changes periodically. It is currently 3.50, which means the current rate on SmartBiz commercial real estate loans is 6.25 %. Click here to learn more about SBA loan rates.
In addition to the interest rate, the cost of a loan also depends on fees. Fees on SmartBiz SBA loans include the following:
- A guarantee fee on the SBA-guaranteed portion of the loan for loans above $150K. These typically range from 3 to 3.5 %. Typically, the SBA guarantees up to 75-85 % of a loan.
- Fees for pulling your credit report
- Property appraisal fees
- Environmental study fees.
- Other fees may be charged by the banks on the SmartBiz platform that fund your loan
SmartBiz SBA loans have no prepayment penalties after the first three years. For the first three years, the prepayment penalties are on a sliding scale: 5 % of the loan balance in the first year, 3 % in the second year, and 1 % in the third year. After that, there are no penalties if you prepay. This is a big advantage over conventional bank loans, which typically charge prepayment penalties on a sliding scale up until the maturity date.
The SmartBiz SBA loan is a 25-year fully amortizing loan. You pay back principal and interest over the term of the loan, and by the end of the term, the loan is fully paid. There are no balloon payments or demand payments.
This is another advantage of SmartBiz’s SBA loans over conventional bank commercial real estate loans. Banks often structure their loans to have a balloon payment. For example, a 10-year loan may be amortized over 25 years. That means you make low monthly payments for 10 years, at which point you have to pay the remaining balance or refinance the loan.
Your business’ financial position may have changed by the time you refinance, so your new terms may not be favorable. Not to mention, you’ll have to go through the process of applying for a loan all over again. SmartBiz SBA loans have no balloon payments so you can focus on what’s most important: running your business.
SmartBiz SBA Loan Application Process and Timeline
The entire SmartBiz SBA loan application process takes about 30-60 days, compared to the typical 90-120 days it often takes when you work directly with a bank. This is one of the primary reasons that we picked SmartBiz as the best commercial real estate SBA loan provider for small businesses.
Here’s a breakdown of SmartBiz’s application process:
SmartBiz SBA Commercial Real Estate Loan – Application Process Step by Step
1. The borrower applies online for a free quote.
The online application should take no more than 30 minutes.
2. SmartBiz does a soft credit pull.
The soft pull of the borrower’s credit won’t affect credit score.
3. SmartBiz approves or rejects the application.
Approval is based on the applicant’s credit score and financial information included in the application.
4. A SmartBiz rep contacts the borrower.
The borrower will be asked to submit documents to verify cash flow, including a personal financial statement, business debt schedule, 3 years business and personal tax returns, and a year-to-date profit & loss statement and balance sheet. A dedicated SmartBiz representative will work with you throughout the process.
5. SmartBiz works with a preferred SBA lender to fund the loan.
The lender will develop a term sheet for the borrower that specifies interest rate, repayment term, fees, and other terms.
6. Borrower accepts the terms.
If the borrower accepts the terms, he or she will have to put up a $2,500 to $5,000 deposit to pay for third party reports, property appraisal, and an SBA-required environmental study.
7. The lender gives formal credit approval.
At this stage, SmartBiz does a hard pull of the borrower’s credit, which may affect credit score by a few points. The lender will send the borrower a commitment letter that agrees to fund the loan.
Paperwork is signed, fees are paid, and loan funds are sent to the borrower’s account.
SmartBiz will give you a dedicated account representative to help you throughout this application process. If there are any questions or concerns, it’s easy and quick to get in touch.
Buying commercial real estate can be an excellent investment in your business and financial future. SmartBiz makes it possible with low-rate, long-term SBA loans, and they cut the time in half of what it typically takes to get a commercial real estate loan. That’s why SmartBiz is the best commercial real estate SBA loan provider for small businesses.