Buying or renovating real estate can be an exciting — and expensive — part of growing your small business. But it can be tough to get approved for small-business loans for real estate through a traditional bank. Online lenders offer solid alternatives.
In general, your small-business loan should cost less than the projected profit from your real estate purchase or renovation. Moreover, because real estate is a large, longer-term investment, you’ll want a loan that has a repayment term of at least two or three years to keep your monthly payments lower.
When you have the opportunity to buy real estate at a discount, however, getting a loan quickly becomes a priority — and the lower cost of the property will help make up for higher loan costs, says Ayush Kapahi, co-founder of CityFunders, a real estate crowdfunding platform based in New York City.
JUMP TO OUR RECOMMENDATIONS BASED ON YOUR QUALIFICATIONS
Below, NerdWallet has examined some options for purchasing or renovating real estate. It’s important to carefully weigh the terms, interest, fees and speed of funding before making a decision.
SmartBiz offers the best SBA loans for real estate if:
- You have strong personal credit.
- You’ve been in business at least two years and bring in at least $50,000 in annual revenue.
- You meet the U.S. Small Business Administration’s requirements and can wait a little longer to get funded.
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Minimum qualifications |
Typical borrower |
|---|---|---|
| Personal credit score | No minimum listed, but most borrowers have a personal FICO score of 600 or higher | Average is 705 |
| Time in business | 2 years | About 10 years |
| Annual revenue | No minimum listed, but most borrowers make at least $50,000 | About $1 million |
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SmartBiz is a good option if you’re an established, profitable business in need of real estate. The online lender provides SBA loans ranging from $30,000 to $350,000 at 7% to 8% APR, repaid over a period of 10 years. Loans from $151,000 to $350,000 can be used for real estate purchases, says Evan Singer, SmartBiz president.
SmartBiz doesn’t have a minimum credit score or revenue requirement, but most borrowers have a score of 600 or higher and bring in at least $50,000 in annual revenue. In fact, the average SmartBiz borrower has a personal credit score of 705, with $1 million in annual revenue and 10 years of business history.
In addition, you can’t have any bankruptcies or foreclosures in the last three years or outstanding tax liens, no recent charge-offs or settlements, and you must be current on government-related loans, including federal student loans and Federal Housing Administration mortgages. You’ll also need to meet the SBA’s eligibility requirements.
On the downside, SmartBiz loans can take a bit longer to receive than other online lenders, as you’ll be required to submit at least 10 required documents, including two years of business and personal tax returns. You’ll also be required to sign a personal guarantee, which pledges your personal assets to repay the loan if your business fails to.
Fundation offers small-business loans for real estate if:
- You have at least three employees.
- You have a minimum personal credit score of 600 and $100,000 or more in annual revenue.
- You’ve been in business at least two years.
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Minimum qualifications | Typical borrower |
|---|---|---|
| Credit score | 600 | 680 to 720 |
| Time in business | 2 years | 5 to 10 years |
| Annual revenue | $100,000 | $250,000 to $750,000 |
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If you don’t meet SmartBiz’s requirements or you need money faster, Fundation is an option for buying or renovating real estate. The online lender provides between $20,000 and $500,000, with an average approval time of just three to five days. You’ll pay slightly more for this speed, however, as Fundation charges 8% to 30% APR on its loans.
Besides meeting the minimum requirements, borrowers must sign a personal guarantee. Fundation also places a lien on your business assets, which means the lender can seize those assets if you fail to repay the loan. The typical Fundation borrower has a personal credit score between 680 and 720 and annual revenue between $250,000 and $750,000, along with five to 10 years of business history.
Borrowers should be sure to note that Fundation automatically deducts your loan repayments from your bank account twice a month. So if you prefer to make monthly repayments, Fundation likely isn’t your best option.
Lending Club offers small-business loans for real estate if:
- You have a personal credit score of at least 600.
- Your business brings in a minimum of $75,000 in annual revenue.
- You want to get a loan quote without affecting your credit score.
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Minimum qualifications |
Typical borrower |
|---|---|---|
| Personal credit score | 600 | 700 |
| Time in business | 2 years | 11 years |
| Annual revenue | $75,000 | $1 million |
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Lending Club provides small-business loans that can be used for nearly any business reason, including upgrading or remodeling your store. The company provides term loans from $5,000 to $300,000, with repayment terms of one to five years and an APR of 8% to 32%.
The main benefit to Lending Club is its speed. Borrowers can complete an online application in five to 10 minutes, with funding as soon as two days. You can also get a loan quote with no effect on your credit score.
While Lending Club requires a minimum credit score of 600, the typical borrower has a score of 700, with an average of $1 million in annual revenue and 11 years in business.
Besides meeting the minimum qualifications, borrowers must own 20% of the business, and a UCC-1 lien — meaning all assets are used as collateral for the loan — is filed on any loan over $100,000. If your business is in Iowa or Idaho, you’re out of luck; the company currently does not provide loans to borrowers in those two states.
Funding Circle offers small-business loans for real estate if:
- You have a personal credit score of at least 620.
- Your business earns at least $150,000 in annual revenue.
- You’ve been in business at least two years.
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Minimum qualifications |
Typical borrower |
|---|---|---|
| Personal credit score | 620 | Average is 700 |
| Time in business | 2 years | About 10 years |
| Annual revenue | $150,000 | About $2 million |
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Funding Circle provides small-business loans of $25,000 to $500,000, with repayment terms from one to five years and an APR between 8% and 33%. The online application takes about 10 minutes to complete, with funding typically arriving in 10 days.
Besides needing strong personal credit, you can’t have had any bankruptcies in the last seven years. At least $150,000 in annual revenue is required, and your business needs to have been profitable at least one of the past two years. Borrowers should take note that the typical Funding Circle borrower has average annual revenue of about $2 million, with a personal credit score over 700 and 10 years in business.
Find and compare the best small-business loans
If you’re looking for other financing, NerdWallet has created a comparison tool featuring the best small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, along with other factors, and arranged them by categories that include your revenue and how long you’ve been in business.
Compare business loansSteve Nicastro is a staff writer at NerdWallet, a personal finance website. Email: Steven.N@nerdwallet.com. Twitter: @StevenNicastro.
To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
This post was updated. It was originally published Sept. 17, 2015.
Image via iStock.
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