SBA 504 loan - What do I need to know

[Ryan Nelson]

Fellow BPers,

I am interested in a property with a 4-plex and some room to develop several more just like it. Unfortunately the raw land isn't producing anything and doesn't help my case with a commercial loan (They are asking 1MM for the 4-plex and land, appraised for about 850K). That said, after talking to some banks it sounds like this is possible for me despite its speculative nature, but with terms in the neighborhood of 20-25% down and 15 year fixed maybe a 5 year 20 amortization. Id rather put less down and try to incorporate some of the loan to development.

Enter SBA 504 loan. Looks like SBA would bring 40% to the table and lender 50% leaving me with 10%.

6 questions posed as 2 questions:

1. Why even try for a small commercial loan…seems like SBA 504 terms are much more favorable? Is it just a longer process, harder to get this loan? What are some challenges in getting this? What do they look at? Any experiences with 504 you can share?

2. Could I roll the new construction cost of building additional units into the SBA 504 loan? If it makes a difference I could add the need to build more units into the offer as the seller is the GC. I have looked at some of his previous work..very good.

Thanks!