Barkett Realty’s Answers to SBA Questions
It’s no secret that St. Pete is growing, and that small businesses are loved by our community. In a city like St. Pete, owning your own building helps you become an even more established part of the community, positions you as a fixture for local customers, and gives you a tangible appreciating asset as you look to grow further while controlling your own destiny.
Securing a commercial real estate loan can be a daunting process, but luckily St. Petersburg offers great lenders, real estate professionals, and other partners who are able to help small businesses that might be struggling to secure conventional financing. The SBA lending program is designed for these exact situations. Going this route gives you viable options to purchase the best possible property for your business with attractive loan terms designed specifically with small businesses in mind.
Read on to learn everything you need to know to get started with an SBA loan and position yourself for SBA success.
What is an SBA Loan?
The U.S. Small Business Administration (SBA) is a government organization that is designed to specifically support small businesses. You might know them as the administration body behind the Paycheck Protection Program (PPP) Loans that helped countless businesses make it through the COVID-19 shutdown.
There are a few types of SBA Loans that can be used for real estate purchases, which we’ve written about previously on Barkett Realty’s blog. At a high level, these are:
- SBA 504 loans can be used for property, plant, and equipment purchases, including real estate. These come with specific rules about property usage, and have to be approved by a local Community Development Corporation in addition to the SBA. Loan amounts can range anywhere from $50,000 to $20 million, with a 10% down payment and a low fixed rate over a 20-year loan term and amortization schedule.
- SBA 7(a) loans come with fewer restrictions about usage. A 7(a) loan can provide working capital in addition to funds for physical purchases, making them particularly attractive to smaller businesses and startups. SBA 7(a) loans are capped at $5 million, and have 10% – 20% down payments and fixed rates no higher than 9% with a 20-year loan term and amortization schedule.
Why choose an SBA loan?
As with any major business and financial decision, you need to carefully weigh your options before going into any debt. SBA loans for commercial real estate offer unique benefits, including longer loan terms, lower interest rates, and lower down payments.
SBA loans aren’t offered directly through the government, but through partner banks and traditional lending institutions with the SBA funding 50% of the total loan amount. A good lender will first work with you to determine if your needs can be met with a traditional loan. When you’ve thoroughly explored your options for other financing, SBA loans can make it possible to purchase a building that will be primarily owner-occupied in one of St. Pete’s rapidly growing business districts.
“We’ve helped a number of businesses find their homes in St. Pete, and often when a space will be primarily owner occupied, the SBA is the best option in terms of payments, interest rates, term and down payment,” says John Barkett of Barkett Realty. “Especially when trying to secure space in rapidly developing areas, these factors are really important for small businesses to be able to compete with major national players. And in our city, it’s particularly important that small businesses have room to grow and thrive so we can keep St. Pete unique.”
In addition to owning your own business space, it’s important to know that SBA-funded properties only have to be 51% owner occupied. This means that you can purchase a property that meets your needs today while allowing you to generate income from leasing the other 49%—and position yourself for future growth.
What do you need to apply for an SBA loan?
Just like with any loan, SBA loans are largely dependent on your financial situation. Valarie Nussbaum-Harris of First Climate Bank recommends that small business owners prepare their documentation and make sure that all accounting records are in good order.
“You always want to put your best foot forward, and the easiest way to do that when applying for a loan is with great financial statements,” says Nussbaum-Harris. “If you are doing your financials yourself, you really need to make sure you know what you’re doing. And if you need some help, go to a professional—they’re happy to help you make sure you’re in good shape before you apply.”
In addition to your historical financial documents, you’ll also need your business plan, your financial projections, your proposed use for the property you’ll purchase, and, in the case of a 504 loan, any documents required by the Community Development Corporation (CDC) working on your loan.
504 loans, specifically, allow you to purchase a building and any equipment and fixtures your building may need. You can also choose to fund a land purchase and new construction project through the 504 program. In addition to the low fixed rates and attractive terms, don’t have outside collateral requirements. This makes it particularly important to make sure your financial documents tell the story of your business, and that the story is one of profitability.
“If you’re thinking about buying a building, the lenders will need to see profitability. If you work with a CPA for your taxes, tell them about your real estate plans so they can make sure they’re showcasing profitability for a few years before your loan application,” says Daniel Martinez of the Florida Business Development Corporation, one of the largest CDCs in the state, “Once you’ve started the loan application process, you’ll want to set aside an hour or two each day to check in with your lender and provide any additional documents they may need. These loans don’t happen overnight, and your vigilance is one of the most important things to help ensure that underwriting goes smoothly.”
Typically, the SBA requires you to create a lease from the owner’s business to your newly created ownership entity that spans the term of the loan—in other words, you’re leasing the building to yourself. This gives the lender and the SBA the ability to intervene in the unlikely event that you’re unable to make payments on your loan. This is the part of the process where you’ll want an SBA-experienced commercial real estate brokerage in your corner.
The more detail your application includes, the easier it is to secure an approval. If you have a prospective property lined up, a plan for any renovations or construction, and a thorough explanation of how your business will utilize the property to serve community groth, you’ll be set up for a smooth approval from both your lender and (for 504 loans, specifically) the local Community Development Corporation.
SBA Lending in St. Pete
Qualifying for and maximizing an SBA loan doesn’t happen in isolation. It’s extremely helpful to have a trusted partner who is an expert in not only the SBA process as it applies to real estate, but is familiar with the local market and has established relationships with a local lender.
When it comes to living, working, and buying real estate in St. Pete, the consensus among both real estate professionals and financial institutions is that our community is growing rapidly, and there’s a strong economy fueling that growth. According to Valarie Nussbaum-Harris, “We’re blessed with a strong market and a strong economy, but as a business owner you shouldn’t rely on that—you still need to do your homework and you’re preparing for all possible financial and economic situations before you take on debt.”
Having more owner-operators in their own spaces is a critical part of helping support St. Pete’s small business community. If buildings sit vacant and underutilized, they’re more likely to be purchased by out-of-market developers or national chains that don’t necessarily have our community’s best interests at heart.
“The state of Florida is currently leading the nation with the number of 504 loans being issued—which is a great indicator of our strong small business economy. The SBA designed these loan programs, and the 504 program specifically, because they want to spur economic growth like ours,” says Daniel Martinez, “There are ample opportunities in St. Pete, and it’s important to make sure you work with a real estate agent who is specialized in commercial real estate, and has experience with the SBA.”
Real estate companies that are invested in community growth will help you see the genuine best use for a property, whether it be adaptive reuse, new construction, or something else altogether. These partners are also more likely to work with you through the lending process once you’ve found your perfect property.
“With SBA loans, especially 7(a) loans, small business owners can solidify their position in our market and acquire the real estate and equipment/inventory they require in order to continue to grow and keep working smarter,” says John Barkett, “the most important thing when applying for an SBA loan is understanding that you’re walking a fine line between lenders, government, and other community organizations—and you need to know how to communicate with all parties. We are able to help you speak that language, and position yourself and your new property for success.”
At Barkett Realty, our commercial real estate experts are well-versed in the SBA lending process, and we have a finger on the pulse of commercial real estate in our community. We’re happy to offer advice about qualifying for an SBA real estate loan, preparing for the application process, and identifying the perfect property for your business. When you’re ready to get started, don’t hesitate to get in touch!