Can I Get an SBA Loan to Buy Rental Property?

It can be tricky when trying to get the right investment for your business. There’s money to be made in property, and it has always been a worthy investment if you have the money to do so.

However, if you don’t have enough cash to buy the property outright, you may need to turn to a loan.

Buying property to rent out is a smart idea, as the tenants will effectively be paying the mortgage for you. So can you get an SBA loan to buy rental property?

Can I get an SBA loan to buy rental property?

Unfortunately the answer is no, you can’t get an SBA loan to buy rental property. You can get an SBA loan to help you find premises for your business, but they won’t give you money for real estate that isn’t going to be owner occupied.

The whole point of SBA loans is so that they can be used for small businesses to get the helping hand they need to get started or boost their business.

As long as your business occupies at least 51% of the space, you should be free to rent out the area that you don’t need.

Sometimes this might even have to be as much as 60% business occupied. But the short answer is that you can’t get an SBA loan purely for property that you intend to rent out.

To get a loan to buy rental property, you will have to go through the more conventional channels.

This will mean you’ll need to invest more money upfront than you would have to with an SBA loan, and you will have to have at least 6 months’ worth of money in the bank to cover any payments should your financial situation change.

Can I use an SBA loan to buy real estate?

You can use an SBA loan to buy real estate, yes - as long as it’s being used for your small business.

SBA loans offer much more affordable rates than some conventional loans, which often make people choose them instead. If you’re looking for an SBA loan to help you buy real estate for your business, then you’re in luck.

The SBA 504 loan has been specifically designed for buying fixed assets such as real estate. This allows your business to get the assets it needs to grow. However, you can only buy real estate that will be used by your business.

To qualify for the SBA 504 loan program, a business will need to occupy at least 50% of the property, or even as much as 60% of new buildings.

As long as your business will occupy the building you plan on buying, you should be able to get an SBA 504 loan for it.

If you want to rent out part of this property, then you will still need to occupy between 51% and 60% of the property.

The property will need to be occupied by the majority of your business before you can even think about renting out the unused space.

Do rental properties qualify for SBA loans?

Unfortunately, SBA loans cannot be used to buy rental properties. One of the stipulations is that an SBA loan cannot be used for investment in rental real estate.

You would need to be buying a property that your business would actually occupy full time. As long as your business took up at least 51% of the property, you could always rent out the unwanted space.

The SBA 504 loan tends to be mostly used for helping you buy a property for your business to occupy. You can also get a 504 loan to build new property to suit your business needs.

It’s important to think about the square footage that your business would need to operate properly so that you can turn a profit. The amount you’re likely to get will be affected by how much space you need.

Can I get a loan to buy rental property?

You can indeed get a loan to buy rental property. However, this will work slightly differently to getting a loan to buy a primary residence or business property.

So while you can’t get an SBA loan for buying rental property, you should be able to secure a loan from elsewhere.

When it comes to securing a loan for rental property, lenders tend to be more strict than with a primary residence.

They basically just want to make sure that you’ll be able to repay the mortgage payments each month. With a primary residence, you’re less likely to walk away from the investment than you are with a property that you don’t live in.

So because of factors like this, lenders will often expect a higher down payment before you can get a loan for rental property.

You’ll need to put down an investment of around 20% of the property value to secure a loan for rental property.

This is mostly because when you put down less than 20% on a primary residence, you will need to take out private mortgage insurance, however, this isn’t available for investment or rental properties.

Most lenders will also require you to have at least 6 months of cash reserves available per property.

So your lender will expect you to have enough money stashed away that you can cover 6 months’ worth of mortgage payments for both your primary residence and the rental property.

You should also be aware that the more loans you have, the more money you’ll have to pay upfront.

To secure a loan for your rental property, it will be worth taking a look at direct lenders instead of a mortgage broker.

Especially if you’re hoping to build a portfolio of rental properties. This will put you in closer proximity to the people who actually lend you the money.

It’s also a good idea to shop around online before taking out a loan, as it can help you find the best rates available.

Can you get a small business loan to buy an investment property?

Trying to find the right loan for investment property can be a challenge.

Some of the more conventional loans come with astronomical interest rates, and often come with a lot of different rules and regulations compared to small business loans from the SBA. 

Conventional loans can often be tricky to get for something like investment or rental properties. So it may be tempting to opt for a small business loan to help you get your property portfolio underway.

Unfortunately, you cannot use a small business loan to buy investment or rental properties. You can only use a small business loan from people like the SBA to buy a property that will be occupied by your small business.

This means that you do have to go to the right kind of lenders to get the loan for your investment property.

Loans for investment property are often much riskier for the lender. So naturally, they tend to want to ensure that you’ll be able to cover the loan repayments.

Should something happen in your personal life that might put your mortgage in jeopardy, you’re naturally going to prioritize your primary residence over your investment property.

To get a loan for investment or rental property, you will need to go through conventional financing.

As frustrating as it is that you can’t get an SBA loan for your needs, there are still plenty of other options for you. Try opting for a loan from companies such as Fannie Mae or Freddie Mac instead.

In Summary

So there you have it! Now you know that SBA loans can’t be used to buy rental property. In fact, your business will need to occupy at least 51% of the building space if you want to rent even part of it out to a third party.

If you’re looking to secure a loan for rental property, then your best bet would be to look elsewhere. The SBA loans are designed to help small businesses grow.

If you want to secure a loan for investment or rental property, you will need to go through conventional lending.

It won’t be as straightforward as getting a mortgage for a primary residence, as there are more risks for lenders when it comes to investment properties.

You will need to have a down payment of at least 20%, and chances are the lenders will expect you to have a good chunk of money stashed aside that can cover at least 6 months’ worth of payments.