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Small business owners in the real estate industry can perform a number of different functions, from buying and flipping property to managing rental properties to acting as a realtor. No matter what your business does, there may be business loans your real estate company can access to start and grow your business.
Learn how to fund a real estate business, the differences between the types of loans, and which one could work best for your business.
How Do I Fund My Real Estate Business?
The way you decide to finance your real estate business depends on what you need to fund and how much funding your business needs. Small business loans provide a variety of loan types and loan amounts to many kinds of business owners. The best business loan a real estate agent can take out, for example, may be for funding a new office or operating expenses. On the other hand, if you’re a new business, you could decide to finance your real estate business startup costs, while house flippers might want to pay for new property.
Real estate borrowers typically apply for one or more of these types of financing:
- SBA loans
- Permanent loans
- Bridge loans
- Hard money loans
- Business lines of credit
- Term loans
- Business credit cards
When choosing between lenders for your real estate business, you’ll want to check loan terms, interest rates and other fees, prepayment penalties, and the lender’s credibility.
Can You Get an SBA Loan To Start a Real Estate Business?
Yes, you can get a loan from the U.S. Small Business Administration (SBA) to launch a real estate business for up to $5 million. With SBA loans, the federal government partners with lenders that offer small business loans and covers a portion of them if the borrower can’t. To qualify for SBA-guaranteed loans, your real estate business must:
- Operate for a profit
- Be located inside the United States or its territories
- Be able to invest owner equity
- Not be a real estate investment firm that holds onto the properties as investments
SBA commercial real estate loans have a notoriously challenging application process and higher requirements than some other lenders, like a high credit score. However, the SBA may have lower interest rates and better terms than other lenders.
One way to increase your chances of getting an SBA loan is to build up your business credit. Read Nav’s guide from experts on how to establish business credit for more.
Can You Use a Business Loan To Buy a House?
Many small business owners are able to use a traditional business loan to purchase a house intended for business use or other commercial property. If the property will be used for business more than half the time, you can use a business loan to fund the purchase. However, this isn’t an option for sole proprietors — you must be an LLC, limited partnership, S-Corp, or C-Corp to use a business loan for real estate. Before applying for a loan program, check to see what a qualifying borrower looks like to make sure you match up.
What’s the Difference Between an SBA 504 and 7(a) Loan?
There are several distinct differences between these two types of loans from the SBA that might affect your eligibility.
SBA 504 loans
SBA 504 loans are designed for a specific borrower: small business owners looking to buy or replace real estate, machinery, or equipment to use in their business. With these loans, an SBA lender will partner with a certified development company (CDC) to offer you funding.
Specific projects may be eligible to borrow up to $5.5 million. You’ll need to put 10% down and pay it back within 10, 20, or 25 years, depending on the terms. One benefit of a 504 loan is that you’ll get a fixed interest rate for at least the CDC portion of the loan. You may also be able to have a lower down payment with a 504 loan than you might need for a commercial real estate loan.
SBA 7(a) loans
The SBA (7a) loan is more common than the SBA 504 loan because it’s more flexible in terms of how you can use it — borrowers can use this funding toward many business expenses including real estate purchases. How much of the loan is guaranteed by the SBA depends on the loan and its terms. Loan terms are up to 25 years for real estate and up to 10 years for equipment, working capital, or inventory. The interest rates vary based on the market but tend to be lower than some other lenders.
SBA Loan by SmartBiz
For high cost projects with long repayment. No immediate funds needed.
Pros
- APR as low as 11.25% with monthly repayment plans up to 10 years
- Ability to be pre-approved and review terms and conditions before needing to provide a full list of financial documents.
Cons
- Lengthy application process (30-60 days) with lower approval odds
- Requires more documents than other Bank Loan products.
Funding Amount
Cost
Repayment Terms
Funding Speed
Other Sources of Real Estate Business Financing
If an SBA loan is out of reach, there are other financing options that may be available to your real estate business to assist with launching or expanding your business. Here are some of the best options.
Other commercial real estate loans
A commercial real estate loan can come in many forms, like a short-term bridge loan or a hard money loan. These loans target businesses looking to purchase real estate so they could work if you’re flipping houses or buying rental properties. Be sure to check the terms, fees, and interest rates of each option before applying.
Term loans
A term loan requires the borrower to pay back the lump sum (plus interest) within a certain term, or period of time, but can be used on most business expenses. Short-term loans have a smaller window for repayment while intermediate- or long-term loans offer more flexibility. This option can be a traditional bank loan or from an alternative lender that offers various interest rates.
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Intermediate-Term Loan by Kapitus
Great for established businesses looking for large capital amounts.
Pros
- Repayment term of 2-6 years for those who qualify
- Favorable payment plans for businesses with $250k+ annual revenue
- Specialty loan programs for medical practices.
Cons
- Some repayment structures require weekly payments
- Favorable terms for 3+ years time in business.
Funding Amount
Cost
Repayment Terms
Funding Speed
Business lines of credit
A business line of credit is a flexible funding solution for small businesses. Like a credit card, you only pay interest on what you use. A line of credit is basically a pool of money that you can draw from as needed and pay back over time. Interest rates depend on the lender, the amount you borrow, and how long your term is.
Small business credit cards
Although it may not seem like an obvious funding solution, business credit cards can provide assistance with working capital and cash flow to real estate businesses. However, the interest rates are usually higher with credit cards than other types of funding, so be careful how much you borrow on them. Find the best business credit card options for your business by using Nav.
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Tiffany Verbeck
Content Manager
Tiffany Verbeck is a Content Manager for Nav. She uses her 8 years of experience writing about business and financial topics to oversee the production of Nav’s longform content. She also co-hosts and manages Nav’s podcast, Main Street Makers, to bring small business owners together to share tips and tricks with a community of like-minded entrepreneurs.
Previously, she ran a freelance business for three years, so she understands the challenges of running a small business. Also, she worked in marketing for six years in a think tank in Washington, DC. Her work has appeared on sites like Business Insider, Bankrate, and Mission Lane.