Special Purpose Property Loans

Special Purpose Property Loans

504 Loan Program by Communication Business Program is specifically designed for buying equipment or property with a low fixed interest rate that is as low as 10% down. However, the SBA categorizes some properties and declares them as "special purpose property."  These properties require a 15% down payment on all 504 loans. 

Borrowers planning to purchase a special purpose property must be prepared to bear this additional expense. 

The SBA defines such properties also as "a property that is appropriate for single or limited use. This is a building that you cannot convert into another type for use unless you have a large capital investment."

According to SBA’s SOPs, they will consider the following properties as limited or special purpose properties.

  • Amusement Parks

  • Bowling Alleys

  • Car wash properties

  • Cemeteries

  • Clubhouses

  • Cold storage facilities where more than 50% of total square footage is equipped for refrigeration

  • Dormitories

  • Farms, including dairy facilities

  • Funeral homes with crematoriums

  • Gas stations

  • Golf courses

  • Hospitals, surgery centers, urgent care centers, and other health or medical facilities

  • Hotels and motels


  • Marinas

  • Mines

  • Museums

  • Nursing homes, including assisted living facilities

  • Oil wells

  • Quarries, including gravel pits

  • Railroads

  • Sanitary landfills

  • Service centers (e.g., oil and lube, brake or transmission centers) with pits and in-ground lifts

  • Sports arenas

  • Swimming pools

  • Tennis clubs

  • Theaters

  • Wineries

 

However, you have to be careful not to make the mistake of assuming your property is on the above-mentioned list. Sometimes conventional lenders will consider a facility to be of special use when the SBA does not. For example, read about our client that used a 504 loan to open a gun range.

Many banks consider financing special purpose properties risky. The reason is that such properties are constructed for specific and limited uses. This means a large capital investment may be required to convert special purpose properties to more general use.

You can use an SBA 504 financing to reduce your exposure to commercial lenders as this risk can result in a far better package to finance your special purpose properties.

You can reap other advantages of securing an SBA 504 mortgage to finance special purpose properties. These include: 

  • As low as 15% down keeps your cash working to grow your business

  • Below-market fixed interest rates with payments fully amortized over 25 years

  • No limit on the total loan amount. Projects over $25 million can still qualify.

  • Finance real estate purchase, construction (including land), expansion, renovation, and equipment/furnishings

  • No additional collateral required