Real estate investing can be a lucrative venture, but it often requires a significant amount of capital. For small business owners looking to invest in real estate, one potential source of funding is the Small Business Administration (SBA) loan program. However, SBA loans are generally intended for owner-occupied commercial real estate, so can real estate investors use SBA loans to buy investment properties? Let’s explore the answer to this question.
What are SBA Loans?
The SBA loan program provides small business owners with access to financing that they may not be able to obtain from traditional lenders. SBA loans are partially guaranteed by the federal government, which reduces the risk to lenders and makes it easier for small business owners to qualify for financing.
There are several types of SBA loans available, including 7(a) loans, 504 loans, and microloans. Each type of loan has its own requirements and restrictions, so it’s important to understand which type of loan is best suited for your needs.
SBA Regulations on Real Estate Financing
According to SBA regulations, SBA loans may be used to acquire or improve owner-occupied commercial real estate, but not for investment properties or speculative real estate ventures. This means that if you’re a real estate investor looking to purchase a property that you do not plan to occupy or use for your business, you will likely not be able to obtain an SBA loan for this purpose.
However, there are exceptions to this rule. For example, the SBA may provide financing for investment properties under certain conditions, such as when the property will be leased to the small business and the lease payments will cover the loan payments.
Additionally, SBA lenders may have their own policies and requirements regarding real estate financing. Some lenders may be willing to provide financing for investment properties under certain circumstances, so it’s important to discuss your options with an SBA-approved lender.
Alternative Financing Options for Real Estate Investors
If you’re a real estate investor looking to purchase an investment property, there are several alternative financing options available. Here are some examples:
Private Loans: Private lenders, such as individuals or companies, may be willing to provide financing for investment properties.
- Private loans often have higher interest rates and shorter repayment terms than traditional loans, but they can be a good option for real estate investors who cannot obtain financing from other sources.
- Hard Money Loans: Hard money loans are short-term loans that are typically used by real estate investors to finance the purchase and renovation of investment properties. Hard money lenders often charge high interest rates and require the borrower to put up collateral, such as the property itself.
- Crowdfunding: Real estate crowdfunding platforms allow investors to pool their money together to finance real estate projects. Crowdfunding can be a good option for investors who want to spread their risk across multiple properties.
- Asset Based Lenders/Mortgage Companies: These are lenders that have the ability to provide 30-year mortgages without documentation of traditional banks.
Conclusion
In summary, SBA loans are generally not available for real estate investors looking to purchase investment properties. However, there are exceptions to this rule, and SBA lenders may have their own policies and requirements regarding real estate financing. If you’re a real estate investor looking to purchase an investment property, it’s important to explore all of your financing options, including private loans, hard money loans, and crowdfunding. With the right financing in place, you can achieve your real estate investing goals and build wealth over time.
How Wallace Capital Funding, LLC Can Help
For all of your business financing needs, Wallace Capital Funding, LLC can help. Whether you need funding for new equipment, financing commercial real estate, or to cover staff expenses before your contract payment comes through, Wallace Capital Funding, LLC can create a custom funding solution that’s right for you. Give us a call at 205-823-9530 or go to www.fundsforinvestor.com to apply TODAY!
Sources:
“SBA Loans for Real Estate: The 504 and 7(a) Loan Programs Explained.” Fit Small Business, 18 Aug. 2021, fitsmallbusiness.com/sba-loans-for-real-estate/.
“SBA 7(a) Loans.” Small Business Administration, 4 Mar. 2021, sba.gov/funding-programs/loans/7a-loans.
“SBA 504 Loan Program.” Small Business Administration, 24 Mar. 2021, sba.gov/funding-programs/loans/504-loan-program.