Pro/Cons of Real Estate in SBA Transactions

July 23, 2023

by a searcher from Columbia University - Columbia Business School in Washington, DC, USA

Hi all,

I'm looking at a potential deal right now which includes the option to purchase the commercial real estate where the business currently operates.

What are the potential benefits of adding real estate into an SBA transaction? Any good reasons to lease instead?

Thanks a lot!

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Reply by a lender
from Bloomsburg University of Pennsylvania in Ambler, PA 19002, USA

Biggest advantage for SBA (and including the real estate) is there is the opportunity to amortize the loan over 25yrs if 51% or more of the project is allocated towards the purchase of real estate. If less than 51% a lender would still blend the term based on the allocation split (example could be 12, 15, 17 yrs, etc). In short you can get massive debt service savings if there is a favorable split (since the acquisition proceeds will extend past 10yrs which is typical for business acquisition as a standalone). Any time a hard asset is included it further bolsters collateral although not a primary consideration for SBA. Cons could be more of a likelihood of a variable floating rate, higher cost of capital (vs financing the building at a lessor LTV if you did that piece conventionally), and some prepayment penalties. Happy to chat further if helpful redacted

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I would concur with Francis. The biggest benefit of including the property into the acquisition is the ability to secure a longer amortization on the SBA 7A loan. However, you need to judge whether the property is the right fit for the business going forward. If it is not a good long-term fit or you cannot secure a fair price for the real estate, it might not be worth the capital investment. We are more than happy to discuss your particular situation and look at ways the real estate could impact your purchase from a financial standpoint if you like. You can ping me here or directly at redacted Good luck with your decision.

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