Funding Entire Purchase Through Real Estate Loan

profile

May 13, 2026

by a searcher from University of Pennsylvania - The Wharton School in Durham, NC, USA

I'm looking at a deal right now to acquire a business and its real estate, with the real estate representing more than half of the purchase price (primarily looking at SBA loans). My understanding is that SBA 7A loans are usually 10-year amortization and higher rate, whereas real estate (often SBA 504) loans are 25-year amort and lower rates. The cash flow and DSCR do not work if I need to take the entire purchase price at a 10-year amort, and still don't work well if I take the business portion at a 10-year amort and the RE at a 25-year amort. However, if I can roll the entire price into a 25-year loan, the math starts to work well. The broker has assured me this is possible if the RE is more than half the purchase price, which it is. I would love to speak with anyone who has used this structure or has expertise on it to evaluate the feasibility.
0
17
299
Replies
17
commentor profile
Reply by an intermediary
from The Johns Hopkins University in Gainesville, FL, USA
If the cash flow and DSCR "still don't work well if I take the business portion at a 10-year amort and the RE at a 25-year amort," then you are either paying too much for the business or not putting enough equity into it. Just my humble opinion.
commentor profile
Reply by a lender
from University of Southern California in Los Angeles, California, USA
Hi @redacted‌ - your broker is correct on the concept but let me clarify the exact rule. Under SBA 7(a), if 51% or more of the loan proceeds go toward real estate (purchase or refinance of RE), the entire loan gets a 25-year amortization - not just the RE portion. A few things to keep in mind: The 51% threshold is based on use of proceeds, not appraised value. So if your total project cost is $2M and $1.1M is going to RE, you qualify. You do not need to split this into two loans. One SBA 7(a) loan covers the business acquisition, the real estate, working capital, and closing costs - all on 25-year amort. SBA 504 is a different program entirely. It involves a CDC (Certified Development Company) and is structured as a conventional first lien (50%) plus a CDC second lien (40%) plus 10% equity injection. 504 is typically better for pure RE purchases or expansion projects, not change-of-ownership acquisitions. Most 504 lenders will not do a full business acquisition. With 25-year amort on the full loan, your annual debt service drops significantly and DSCR should clear the 1.25x minimum comfortably if the business fundamentals are solid. We recently funded several deals with this exact structure where RE was the majority of proceeds. Happy to walk you through it. We are a free service to the borrower, since we get paid by the lender post-close. Please use this meeting link to schedule a meeting with my team: https://cal.com/team/sba/searchfunder
commentor profile
+15 more replies.
Join the discussion