Subhead Resources Virginia

Construction Financing through the SBA

Posted by Busey Bank on Apr 26, 2021 10:08:22 AM
Busey Bank

Are you a small business owner looking to finance a ground-up commercial construction project, expand existing facilities or make smaller building renovations and improvements to your business? The SBA 7(a) guaranteed loan program is a great long-term financing option for small business owners looking for financial assistance with larger construction projects.

Architect and client on a construction site standing at a drafting table discussing the building process.

Trying to decide what type of loan is best for your business can be confusing and overwhelming—the following information will help you to decide whether the 7(a) loan is right for you and your budding business.

Loan Uses

The 7(a) guaranteed loan program is the SBA’s primary lending program. With flexible uses and loan maximums of up to $5 million, business owners can access financing for a variety of larger cost projects. The 7(a) loans are commonly used for the following purposes:

  • Expanding, acquiring or starting a new business
  • Purchasing land or buildings
  • Covering new construction costs, as well as expansions and conversions of existing buildings
  • Purchasing machinery and equipment

Loan Size Requirements, Down Payments and Maturity Terms

If considering a 7(a) loan, it’s important to consider size requirements. These loans range anywhere from $250,000 to $5 million with a minimum down payment of 10% provided by the borrower.

SBA loan programs are intended to encourage longer-term financing. Loan maturities—or the date on which a borrower’s final loan payment is due—are based on the borrower’s ability to repay, the purpose of the loan proceeds and the useful life of the assets financed. Maximum maturities for SBA loans are as follows:

  • 25 years for real estate
  • 10 years for equipment
  • 10 years of working capital or inventory plan

Program Eligibility Requirements

If the 7(a) loan seems to be the right fit for you and your businesses’ upcoming construction project, you must now determine if you qualify. To be eligible for a 7(a) loan, your business must meet the following requirements:

  • When loan proceeds are used to purchase or renovate an existing building, the borrower must occupy at least 51% of the property.
  • For new construction, the borrower must occupy at least 60% of the property.
  • All assets financed must be used to the direct benefit of the business.

There are many additional eligibility standards that borrowers must meet to obtain financing. These standards include meeting the SBA size guidelines, having qualified management expertise, a feasible business plan, good character and the ability to repay the loan.

With an extensive amount of guidelines and requirements, selecting the loan program that’s right for you and your specific business needs can be tough, but partnering with an experienced lender will help you to construct the appropriate financing plan for you.

Whether you’re financing a ground-up commercial construction project or making minor renovations and improvements to your business, Busey’s team of SBA Lending Specialists can help you find the solutions you need. Contact our team of experienced lenders today.

Topics: Business

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