How to purchase land with an SBA 504 loan?
Using an SBA 504 loan to purchase land for your future business site is a great idea. For one thing, an SBA 504 loan only requires a 10% down payment, compared to traditional commercial loans that require 20% to 40% down payments. Another benefit of using an SBA 504 loan is that it provides long repayment terms. While traditional commercial mortgages are five- to 10-year loans, the Certified Development Company (CDC) portion of an SBA 504 Loan has a 20-year term for real estate. Before applying, keep in mind that if you will be building on the property, you will be able to rent space out in your facility, but you must be using a majority of it for your business. In fact, it must be at least 60 percent owner-occupied at the date of occupancy and 80% owner-occupied within the following 10 years. To qualify for an SBA 504 loan, you must meet the following conditions:
- Credit Score—You need to have a credit score of 680 or higher
- Limited Outstanding Debt—Your Debt Service Coverage Ratio should be no lower than 1.25
- Down Payment—You must be able to satisfy the down payment requirement
- Proof of Payment Ability—You will be required to show that you can reasonably afford the monthly payments of your loan
- Clean Financial History—In addition to not having a lot of outstanding debt, you should also not have a history of recent bankruptcies, foreclosures, or tax liens.
When you’re ready to make your move, contact us. 504 Capital Corporation has an Accredited Lenders Program (ALP) designation for Certified Development Companies (CDCs). This means we can expedite the process if the purchase of the property is time sensitive.