The Complete Guide to SBA Loans for Small Business Owners (2026 Edition)

Securing financing for your small business can be one of the most challenging aspects of entrepreneurship. Whether you are looking to start a new business, expand operations, purchase real estate, or refinance existing debt, finding the right funding source is crucial to your success. SBA loans are designed specifically to help small businesses that might not qualify for conventional financing. With updated 2025 guidelines from SOP 50 10 8, these loans now offer more flexibility than ever before, including easier path for partner buyouts and higher collateral thresholds.

This is where Small Business Administration (SBA) loans come into play. SBA loans are designed specifically to help small businesses that might not qualify for conventional financing. With favorable terms, lower down payments, and flexible use of funds, SBA loans have become one of the most popular financing options for American small businesses.

In this comprehensive guide, you will learn everything you need to know about SBA loans. We will cover the different types of SBA loan programs, how to qualify, the application process, and tips for success. We will also discuss alternative financing options including USDA Business and Industry loans and Commercial Mortgage-Backed Securities (CMBS) loans that may suit your specific business needs.

If you still have questions at the end of this article, make sure to contact Peoples Bank. As a preferred SBA lender with over 30 years of experience, our experts can help you navigate the SBA loan process and find the best financing solution for your business.

What is an SBA Loan?

An SBA loan is a small business loan that is partially guaranteed by the U.S. Small Business Administration, a federal government agency dedicated to supporting American small businesses. It is important to understand that the SBA itself does not directly lend money to small businesses. Instead, the SBA partners with approved lenders, like Peoples Bank, to provide financing to small businesses under more favorable terms than traditional commercial loans.

The SBA guarantee reduces the risk for lenders, which allows them to offer loans to businesses that might not otherwise qualify for conventional financing. This guarantee typically covers between 50% and 85% of the loan amount, depending on the size and type of loan. Because the government backs a portion of the loan, lenders can offer longer repayment terms, lower down payments, and more flexible qualification requirements.

SBA loans can be used for a wide variety of business purposes, including working capital, equipment purchases, real estate acquisition, business expansion, debt refinancing, and even business acquisitions. The flexibility and favorable terms make SBA loans one of the most sought-after financing options for small businesses across the United States.

How SBA Loans Differ from Traditional Bank Loans

Traditional bank loans and SBA loans serve similar purposes but have several key differences. Conventional bank loans typically require higher credit scores, larger down payments / equity injections (often 25% or more), and more substantial collateral. They also tend to have shorter repayment terms, which can result in higher monthly payments that strain a small business’s cash flow.

SBA loans, on the other hand, offer extended amortization periods (up to 25 years for real estate), reduced down payment requirements (as low as 10%), and more lenient collateral requirements. The application process for SBA loans is typically more thorough and takes longer than conventional loans, but the favorable terms often make the extra time worthwhile. 

Types of SBA Loan Programs

The Small Business Administration offers several different loan programs designed to meet various business needs. Understanding the differences between these programs will help you determine which option is best suited for your specific situation.

SBA 7(a) Loan Program

The SBA 7(a) loan program is the most popular and versatile SBA loan option. It is designed for small businesses that need general-purpose financing. The 7(a) program can be used for working capital, equipment purchases, real estate acquisition, debt refinancing, business expansion, and more. Maximum loan amounts for standard 7(a) loans reach up to $5 million, making them suitable for a wide range of business needs.

At Peoples Bank, we specialize in SBA 7(a) loans and have helped thousands of small business owners secure the financing they need to grow and thrive.

SBA 504 Loan Program

The SBA 504 loan program is specifically designed for businesses looking to purchase or improve fixed assets such as real estate, buildings, or major equipment. Unlike 7(a) loans, 504 loans have a unique structure involving three parties: a conventional lender (typically providing 50% of the project cost), a Certified Development Company or CDC (providing up to 40% through an SBA-backed debenture), and the borrower (contributing at least 10% as a down payment).

The 504 program offers competitive interest rates on the CDC portion of the loan and can be an excellent option for businesses making substantial investments in fixed assets. However, the funds cannot be used for working capital or inventory.

SBA Express Loans

SBA Express loans offer a streamlined application process and faster approval times, typically within 36 hours. These loans are capped at $500,000 and feature an SBA guarantee of up to 50%. The faster turnaround makes Express loans ideal for businesses that need quick access to capital, though the reduced guarantee percentage may result in slightly higher interest rates compared to standard 7(a) loans.

SBA Microloans

SBA Microloans are small loans of up to $50,000 (with an average loan size of about $13,000) designed for startups and small businesses that need modest amounts of capital. These loans are administered through nonprofit community-based organizations and are often used for working capital, inventory, supplies, furniture, fixtures, and machinery.

SBA Disaster Loans

SBA Disaster Loans are available to businesses affected by declared disasters. These low-interest loans can help businesses repair or replace damaged property, machinery, equipment, inventory, and other business assets. While we will not focus heavily on disaster loans in this guide, it is worth knowing they exist should your business ever face such circumstances.

Understanding the SBA 7(a) Loan Program in Detail

Since the SBA 7(a) program is the most commonly used and the program in which Peoples Bank specializes, let us explore it in greater depth.

Loan Amounts and Terms

The SBA 7(a) loan program offers flexible loan amounts and terms based on how the funds will be used:

• Working Capital: Up to 7 years
• Machinery and Equipment: Up to 10 years
• Real Estate: Up to 25 years
• Maximum Loan Amount: $5 million for standard 7(a) loans

These extended repayment terms are one of the primary advantages of SBA 7(a) loans. By spreading payments over a longer period, businesses can maintain healthier cash flow while still accessing the capital they need.

Updated SBA 7(a) Maximum Interest Rates

Interest rates for SBA 7(a) loans are negotiated between the borrower and the lender, but the SBA sets maximum allowable variable spreads. As of June 2025, the maximum spreads are determined strictly by the loan amount. 

$50,000 or less Prime + 6.50%

$50,001 to $250,000 Prime + 6.00%

$250,001 to $350,000 Prime + 4.50%

Over $350,000 Prime + 3.00%

While the SBA establishes strict maximum allowable interest rates under SOP 50 10 8, these figures represent a regulatory ceiling, not a fixed cost. At Peoples Bank, we leverage our Preferred SBA Lender status to offer competitive pricing that often falls significantly below these federal maximums.

Your specific interest rate is negotiated based on a comprehensive risk-based analysis of several key factors:

• Borrower Qualifications: We evaluate the management team’s industry-specific experience, the liquidity available for the project, and the overall personal and business creditworthiness of all principals owning 20% or more.
• Historical Business Performance: Lenders prioritize businesses with stable or growing historical cash flow, typically evidenced by the three most recent years of tax returns and financial statements.
• Collateral and Asset Condition: The quality and valuation of your collateral—ranging from real estate to machinery and equipment—are critical determining factors. For larger loans, such as hotel acquisitions, the condition of these “Special Purpose Properties” and their independent business valuations play a major role in final rate positioning.
• Repayment Ability: Our underwriters focus on the business’s ability to maintain a Debt Service Coverage Ratio (DSCR) of at least 1.15, ensuring the operation can comfortably handle new debt obligations while maintaining healthy cash flow.

Eligible Uses for SBA 7(a) Loans

One of the greatest advantages of the SBA 7(a) program is its flexibility in how funds can be used. Eligible uses include:

• Working capital for daily operations
• Purchasing equipment, fixtures, and supplies
• Refinancing existing business debt (under certain conditions)
• Acquiring an existing business
• Purchasing real estate (including land and buildings)
• Business expansion or renovation
• Starting a new business
• Inventory purchases

However, there are some restrictions. SBA 7(a) loans cannot be used to repay delinquent taxes, for a business that lends money, for non-profits or for purely speculative purposes.

Variations Within the 7(a) Program

The SBA 7(a) program includes several specialized variations:

• Standard 7(a) Loans: Maximum of $5 million, used for general business purposes
• 7(a) Small Loans: Maximum of $500,000, designed for smaller financing needs
• SBA Express: Maximum of $500,000 with expedited processing
• Export Express: Maximum of $500,000 for businesses involved in exporting
• Export Working Capital: Maximum of $5 million for export-related working capital
• International Trade: Maximum of $5 million for businesses adversely affected by import competition or preparing to export
• CAPLines: Maximum of $5 million for working capital needs

Benefits of SBA Loans

SBA loans offer numerous advantages over conventional financing options. Understanding these benefits will help you appreciate why SBA loans have become such a popular choice for small business owners.

Lower Down Payment Requirements

Traditional commercial loans often require down payments of 20-30% or more. SBA loans, particularly the 7(a) program, typically require down payments as low as 10% for most purposes. This lower barrier to entry makes it possible for businesses to obtain financing without depleting their cash reserves.

Extended Repayment Terms

Perhaps the most significant advantage of SBA loans is their extended repayment terms. Real estate purchases can be financed for up to 25 years, equipment for up to 10 years, and working capital for up to 7 years. These longer terms result in lower monthly payments, which helps businesses maintain positive cash flow even while repaying significant debt.

Competitive Interest Rates

Because SBA loans are partially guaranteed by the federal government, lenders can offer competitive interest rates that are often lower than what would be available through conventional financing. This can result in substantial savings over the life of the loan.

Flexible Use of Funds

Unlike some specialized loan products that can only be used for specific purposes, SBA 7(a) loans offer tremendous flexibility. You can use the funds for virtually any legitimate business purpose, from working capital to real estate acquisition. This versatility makes SBA loans suitable for businesses at various stages of growth and with different financing needs.

More Lenient Collateral Requirements

While collateral is still typically required for SBA loans, the requirements are often more flexible than those for conventional commercial loans. The SBA’s guarantee reduces the lender’s risk, which can make them more willing to accept collateral that might not meet traditional lending standards.

Easier Qualification Standards

The SBA loan program was created specifically to help small businesses that might not qualify for conventional financing. While SBA loans still have qualification requirements (which we will discuss in detail shortly), these requirements are generally more attainable for small businesses than those of traditional bank loans.

Building Credit and Relationships

Successfully obtaining and repaying an SBA loan can help your business build credit and establish a strong relationship with your lender. This can open doors to additional financing opportunities as your business grows.

Special Focus: SBA Financing for Hotels & Hospitality

For larger 7(a) loans, particularly in the hotel industry, the SOP 50 10 8 includes specific technical requirements that experienced lenders like Peoples Bank navigate for you.

• Special Purpose Property Classification: Hotels and motels are classified as “Special Purpose Properties”. These require a Going Concern Appraisal performed by a Certified General Real Property Appraiser with hospitality-specific experience.
• The Transient Occupancy Rule: To be eligible, a hotel must derive more than 50% of its revenue from transients who stay for 30 days or less at a time.
• Hotel Debt Refinancing: 7(a) loans are ideal for refinancing conventional hotel debt, including demand notes or balloon payments. The new loan must provide a substantial benefit, typically a 10% improvement to the monthly payment.

How to Qualify for an SBA Loan

While SBA loans are more accessible than many conventional financing options, they still have specific qualification requirements. Understanding these requirements will help you determine whether your business is ready to apply and what steps you might need to take to improve your eligibility.

Basic Eligibility Requirements

To be eligible for an SBA loan, your business must meet certain fundamental criteria:

• Size Standards: Your business must qualify as a “small business” according to SBA size standards, which vary by industry. Generally, this means having fewer than 500 employees for most manufacturing and mining industries, or average annual receipts under a certain threshold for other industries.
• For-Profit Operation: Your business must operate for profit. Nonprofit organizations are not eligible for most SBA loan programs.
• U.S.-Based: Your business must be physically located and operate in the United States or its territories.
• Owner Equity: Business owners must have invested their own time or money in the business.
• Alternative Financing: You must demonstrate that financing is not available on reasonable terms without SBA assistance.

Credit Score Requirements

While the SBA does not set a minimum credit score requirement, individual lenders establish their own standards. Most lenders look for credit scores of at least 620-640 for SBA loans, though some may accept lower scores with compensating factors. At Peoples Bank, we evaluate the complete financial picture of your business and its owners, not just credit scores.

A higher credit score will generally result in better loan terms and interest rates. If your credit score is below the preferred range, consider taking steps to improve it before applying, such as paying down existing debt, correcting errors on your credit report, and making all payments on time.

Business Financial Health

Lenders will closely examine your business’s financial health through several key metrics:

• Revenue and Profitability: Your business should demonstrate stable or growing revenue and ideally be profitable. Startups without an operating history will need to provide detailed financial projections.
• Cash Flow: Lenders want to see that your business generates sufficient cash flow to cover its debt service obligations plus normal operating expenses.
• Debt Service Coverage Ratio (DSCR): This ratio compares your business’s net operating income to its debt obligations. Most lenders look for a DSCR of at least 1.25, meaning your business generates 25% more income than needed to cover debt payments.
• Debt-to-Income Ratio: Lenders evaluate how much debt your business already carries relative to its income.

Business Plan and Purpose

You will need to clearly articulate why you need the loan and how you plan to use the funds. A comprehensive business plan demonstrates to lenders that you have carefully thought through your business strategy and financial needs. For startups, a detailed business plan is especially critical since you do not have an operating history to review.

Industry and Business Type

Certain types of businesses are ineligible for SBA loans, including businesses engaged primarily in speculation, lending, passive investment, and certain other activities. Additionally, businesses involved in gambling, loan packaging, presenting live performances of a prurient nature, or activities deemed contrary to SBA regulations are not eligible.

Owner Qualifications

The personal financial situation of business owners matters significantly for SBA loans. Lenders typically require:

• Owners with 20% or more equity in the business to personally guarantee the loan
• Personal financial statements from all principal owners
• Demonstration of financial responsibility and character

Collateral

While the SBA does not require collateral for all loans under $50,000, most loans will require some form of collateral. The SBA takes the position that lenders should require collateral to the extent that it is available, but insufficient collateral should not be the sole reason for denying a loan application. Business assets financed with the loan often serve as primary collateral, and additional collateral such as real estate or other business assets may be required.

Key Eligibility & Ownership Changes (2025 Updates)

The SBA has modernized rules regarding how you can use loan proceeds to grow or acquire a business:

• Partial Changes of Ownership: You can now use an SBA 7(a) loan for a partial buyout of a partner or to fund an employee buy-in. You no longer need to buy 100% of the company to qualify for financing.
• Collateral Requirements: For loans of $50,000 or less, lenders are generally not required to take a lien on business assets.
• Personal Resources Test: The SBA has removed the federal “Personal Resources Test.” There is no longer a specific net worth or liquidity cap that automatically disqualifies a borrower.
• Spousal Guarantees: A spouse is only required to guarantee the loan if their combined ownership interest (with the owner) is 20% or more.

The SBA Loan Application Process

Applying for an SBA loan is more detailed than applying for a conventional bank loan, but the process becomes straightforward once you understand the steps involved. At Peoples Bank, we guide you through every stage of the application process.

Step 1: Pre-Qualification and Consultation

The first step is to determine whether an SBA loan is the right fit for your business. Contact a preferred lender like Peoples Bank to discuss your business needs, financial situation, and goals. During this initial consultation, a loan officer will help you understand which type of SBA loan best suits your needs and give you a realistic assessment of your eligibility.

This is also the time to ask questions about interest rates, fees, terms, and any concerns you may have about the process. An experienced SBA lender can provide valuable guidance on how to strengthen your application before formal submission.

Step 2: Gather Required Documentation

Once you decide to move forward, you will need to compile a substantial amount of documentation. We will cover the specific documents needed in the next section, but generally, you should expect to provide financial statements, tax returns, business plans, and various other documents that demonstrate your business’s financial health and loan repayment ability.

Getting these documents organized early will expedite the process. Many applicants underestimate how long it takes to gather all necessary paperwork, so start this step as soon as possible.

Step 3: Complete the Application

Your lender will provide you with the necessary application forms, which typically include the SBA Form 1919 (Borrower Information Form) and SBA Form 912 (Statement of Personal History). You will also need to complete the lender’s own application paperwork.

The application will require detailed information about your business, including its legal structure, ownership, financial history, and the purpose of the loan. Take your time completing these forms accurately. Errors or omissions can delay the approval process.

Step 4: Submit Application and Documentation

Once your application is complete and all supporting documentation is gathered, you will submit everything to your lender. Make sure to keep copies of everything you submit for your own records.

Step 5: Lender Review and Analysis

After submission, your lender will conduct a thorough review of your application and supporting documents. This process involves analyzing your business’s financial health, creditworthiness, cash flow, and ability to repay the loan. The lender will also verify the information you provided and may request additional documentation or clarification on certain points.

As a preferred SBA lender, Peoples Bank has delegated authority to make credit decisions on most SBA loans without having to wait for SBA approval. This streamlined process significantly reduces the time from application to approval.

Step 6: Approval and Closing

If your application is approved, you will receive a commitment letter outlining the terms and conditions of the loan. Review this document carefully and ask questions about anything you do not understand. You will then proceed to the closing process, which involves signing loan documents, providing any final required documentation, and meeting any conditions specified in the commitment letter.

At Peoples Bank, we strive to close most SBA loans within 60 days or less, though complex transactions may take longer.

Step 7: Funding

Once all closing documents are signed and all conditions are met, the loan will be funded. For real estate purchases, funds are typically disbursed through escrow at closing. For other purposes, funds may be disbursed directly to your business account or to vendors according to the loan agreement.

Required Documentation for SBA Loans

One of the reasons SBA loans take longer to process than conventional loans is the extensive documentation required. While the specific documents needed may vary depending on your business situation and loan type, here is a comprehensive list of what you should expect to provide:

Business Documents

• Business Plan (especially important for startups and newer businesses)
• Business license and any professional certifications
• Articles of Incorporation or Organization (for corporations or LLCs)
• Business operating agreement or partnership agreement
• Franchise Agreement (if applicable)
• Commercial lease or proof of ownership for business premises

Financial Documents

• Three years of business tax returns (if available)
• Three years of personal tax returns for all owners with 20% or more ownership
• Year-to-date profit and loss statement
• Current balance sheet
• Cash flow projections
• Business bank statements (typically 3-6 months)
• Accounts receivable and accounts payable aging reports
• Personal financial statement for all owners with 20% or more ownership
• Personal bank statements for all principal owners (typically 3 months)

Purchase-Specific Documents (if applicable)

• Purchase agreement or Letter of Intent
• Real estate appraisal or listing information
• Equipment quotes or invoices
• Environmental assessment (for real estate transactions)
• Title report (for real estate)

Debt Refinancing Documents (if applicable)

• Current loan statements showing balances and payment history
• Original loan documents
• Explanation of why refinancing is necessary

Acquisition Documents (if purchasing a business)

• Three years of tax returns and financial statements for the business being purchased
• Purchase agreement
• Business valuation or appraisal
• List of assets being acquired

Personal Identification

• Government-issued photo ID (driver’s license or passport)
• Resume or personal history for all principal owners

Working with an experienced SBA lender like Peoples Bank can help ensure you provide all necessary documentation the first time, reducing delays in the approval process. Our team will provide you with a detailed checklist specific to your situation and will help you track down any documents you may have difficulty locating.

Tips for Getting Approved for an SBA Loan

While meeting the basic eligibility requirements is essential, there are several strategies you can employ to improve your chances of approval and potentially secure better loan terms.

Improve Your Credit Score

If time allows, work on improving both your personal and business credit scores before applying. Pay down existing debt, make all payments on time, and correct any errors on your credit reports. Even a modest improvement in your credit score can make a difference in your approval odds and the interest rate you receive.

Strengthen Your Business Finances

Take steps to put your business in the strongest possible financial position before applying. This might include increasing revenue, improving profitability, building cash reserves, or paying down existing business debt. The stronger your financial position, the more attractive you are as a borrower.

Develop a Comprehensive Business Plan

A well-written business plan demonstrates that you understand your market, have a clear strategy for success, and have thought through the financial implications of your plans. Your business plan should include an executive summary, company description, market analysis, organization and management structure, service or product line details, marketing and sales strategies, and detailed financial projections.

For existing businesses, explain your track record of success and how the loan will help you achieve your next growth objectives. For startups, provide thorough market research and realistic financial projections that demonstrate the viability of your business concept.

Be Prepared to Explain Your Loan Purpose

Clearly articulate why you need the loan and how you will use the funds. Lenders want to see that you have a specific, well-thought-out plan for the money. Vague requests for working capital are less compelling than detailed explanations showing exactly how the funds will be deployed and how they will generate returns for your business.

Demonstrate Industry Knowledge and Experience

Lenders feel more confident lending to borrowers who have relevant industry experience and expertise. If you are starting a restaurant, for example, having worked in the restaurant industry significantly strengthens your application. If you lack direct industry experience, consider partnering with someone who has it, or explain how your transferable skills apply to your new venture.

Show Skin in the Game

Lenders want to see that you have your own money invested in the business. Having substantial owner equity demonstrates your commitment and reduces the lender’s risk. If you are starting a business, be prepared to invest your own capital. If you are buying or expanding an existing business, a larger down payment can strengthen your application.

Be Honest and Transparent

Always be completely honest in your application and when communicating with your lender. Attempting to hide problems or exaggerating information will inevitably surface during the underwriting process and can result in denial of your application. If there are issues in your credit history or business finances, address them proactively and explain the circumstances and what steps you have taken to resolve them.

Organize Your Documentation

Present your application and supporting documents in a professional, organized manner. Create a comprehensive package that is easy for the lender to review. Label all documents clearly, provide a table of contents, and ensure all financial statements are properly prepared and easy to read. The extra effort you put into organization demonstrates professionalism and attention to detail.

Choose the Right Lender

Not all lenders have the same level of expertise with SBA loans. Working with a preferred SBA lender like Peoples Bank that has extensive experience with SBA loan programs can make a significant difference in your experience and approval odds. Preferred lenders have delegated authority to approve loans without additional SBA review, which speeds up the process considerably.

Be Patient but Persistent

The SBA loan process takes time, typically 45-60 days from application to closing. Be patient with the process, but also stay engaged. Respond promptly to any requests for additional information or documentation. Check in periodically with your loan officer to see if there is anything you can do to move the process forward.

Alternative Financing Option: USDA Business & Industry Loans

While SBA loans are an excellent option for many small businesses, they are not the only government-backed financing program available. USDA Business and Industry (B&I) loans offer another alternative that may be particularly attractive for businesses located in rural areas.

What Are USDA B&I Loans?

The USDA Business & Industry loan program is administered by the U.S. Department of Agriculture’s Rural Development agency. Similar to SBA loans, B&I loans are not made directly by the USDA but rather by approved commercial lenders with the USDA providing a guarantee on a portion of the loan. The guarantee can range from 60% to 80% depending on the loan size.

Geographic Requirements

The primary distinction between USDA B&I loans and SBA loans is the geographic requirement. USDA B&I loans are specifically designed to support businesses in rural areas, defined as communities with populations of 50,000 or less. However, the business’s headquarters can be located in a larger city as long as the project itself is located in an eligible rural area.

You can check whether your business location qualifies as a rural area by visiting the USDA’s eligibility website.

Key Features of USDA B&I Loans

• Loan Amounts: Generally up to $25 million, though larger amounts may be approved under certain circumstances
• Use of Funds: Business startup costs, expansion, modernization, equipment and machinery purchases, real estate acquisition, working capital, and debt refinancing
• Terms: Flexible terms based on the use of funds and the useful life of assets being financed
• Interest Rates: Negotiated between borrower and lender, can be fixed or variable
• Collateral: Typically required on all B&I loans

Special Focus: USDA B&I Financing for Rural Hotels

For larger hospitality projects located in rural markets, the USDA Business & Industry (B&I) Loan Program offers a powerful alternative to SBA financing. While the SBA 7(a) program is capped at $5 million, USDA B&I loans can reach up to $25 million per project, making them the premier choice for major hotel acquisitions, new construction, and large-scale renovations in eligible areas.

• The 50,000 Population Rule: To be eligible, the hotel must be located in a rural area, defined as any city, town, or village with a population of 50,000 or fewer residents. Interestingly, your business headquarters can be located in a major urban center as long as the specific hotel project is within a qualifying rural zone.
• Extended 30-Year Amortization: One of the most significant advantages of the USDA B&I program over the SBA 7(a) is the ability to secure 30-year fully amortizing terms for real estate. This extra five years of amortization significantly reduces monthly debt service and improves a hotel’s net cash flow.
• Special Purpose Property Appraisals: Much like the SBA, the USDA classifies hotels as Special Purpose Properties. For loans where the value of the business enterprise (going concern) is a factor, a specialized appraisal is required. If the value of the business components exceeds $250,000, the appraisal must be performed by a Certified General Real Property Appraiser with documented experience in hospitality “going concern” valuations.
• High-Leverage Refinancing: USDA B&I loans are an excellent tool for consolidating high-interest conventional debt or maturing bridge loans. For a hotel refinance, the USDA typically requires a 10% tangible balance sheet equity position. This can include the costs of Franchise PIPs (Property Improvement Plans) and renovations, allowing owners to modernize their assets while lowering their cost of capital.

Benefits of USDA B&I Loans

USDA B&I loans offer several advantages similar to SBA loans, including lower down payment requirements, extended repayment terms, and more flexible qualification standards than conventional commercial loans. The USDA guarantee allows lenders to provide financing to businesses that might not qualify for conventional financing, particularly in rural areas where access to capital can be limited.

Additionally, USDA B&I loans can be used for purposes that may not be eligible under SBA programs, and they often have no maximum limit on the percentage of the project that can be financed (subject to lender requirements).

New Construction

For hospitality developers, the USDA Business & Industry (B&I) Guaranteed Loan Program is a superior vehicle for ground-up construction in rural markets, particularly when project costs exceed the standard $5 million SBA 7(a) limit. With the current cost to build a mid-scale hotel often exceeding $20 million, the USDA B&I program fills a critical gap by offering high-leverage, long-term permanent financing that traditional conventional lenders often restrict for new construction.

Why USDA B&I is the Premier Choice for New Hotel Construction:

• Higher Loan Limits: While the SBA 7(a) is capped at $5 million, the USDA B&I program provides up to $25 million per project, accommodating the large-scale capital stacks required for modern hotel builds.
• Superior Cash Flow Management: USDA B&I loans offer up to 30-year fully amortizing terms for real estate, compared to the 25-year maximum for SBA 7(a). This extended period significantly lowers monthly debt service, which is vital during a new hotel’s stabilization phase.
• Construction-to-Permanent Financing: Unlike many conventional options that require a refinance after building is complete, the USDA program is a one-time close structure that covers the construction period and automatically converts to a permanent loan.
• Interest-Only Periods: To support your business during the “ramp-up” phase, the USDA can allow for up to 36 months of interest-only payments until the property is fully operational and generating sufficient cash flow to service principal payments.
• Flexible Eligibility: This program is available to hotels in any rural area with a population of 50,000 or fewer residents. For new construction (start-ups), the USDA requires a tangible balance sheet equity of 20%, providing a high-leverage path for developers to preserve their liquid working capital.

Eligibility Requirements

To qualify for a USDA B&I loan, businesses must:

• Be located in an eligible rural area
• Be a legal entity in good standing
• Demonstrate that the loan will create or retain jobs in rural areas
• Be unable to obtain credit elsewhere without the USDA guarantee
• Have good credit history
• Have sufficient cash flow to service debt

When to Consider USDA B&I Loans

USDA B&I loans are an excellent option if your business is located in or plans to expand into a rural area. They are particularly well-suited for manufacturing, processing, and service businesses that will create employment opportunities in rural communities. The program’s focus on job creation means that projects demonstrating significant employment impact may receive favorable consideration.

If you are considering both SBA and USDA B&I financing, discuss your options with your lender. In some cases, one program may offer better terms or be more suitable for your specific situation.

Alternative Financing Option: CMBS Loans for Commercial Real Estate

For businesses seeking financing for commercial real estate, Commercial Mortgage-Backed Securities (CMBS) loans represent another alternative to consider alongside SBA and traditional bank financing.

What Are CMBS Loans?

CMBS loans, also known as conduit loans, are commercial real estate loans that are packaged together with other commercial loans and sold to investors in the secondary market as securities or bonds. This securitization process creates a robust source of capital for commercial real estate financing.

The CMBS market is substantial, with approximately $1.8 trillion in outstanding securities, making it one of the largest sources of commercial real estate financing in the United States.

Special Focus: CMBS Conduit Financing for Stabilized Assets

For sophisticated investors seeking high-leverage, non-recourse financing for institutional-grade real estate, CMBS (Conduit) Loans provide access to the global capital markets. Unlike traditional bank loans, CMBS loans are pooled into a trust and sold to investors as bonds, allowing for more aggressive terms on stabilized properties.

• Non-Recourse Structure: CMBS loans are typically non-recourse, meaning the lender’s only collateral is the property itself. Borrowers are not personally liable for the debt, subject only to standard “bad-boy carve-outs” for issues like fraud or environmental indemnification.
• Institutional Asset Versatility: While highly popular for hotels, CMBS is the preferred financing vehicle for a broad range of income-producing asset classes:
  • Hotels & Hospitality: Ideal for branded, boutique, or budget flags.
  • Apartment Complexes: Preferred for large-scale multifamily and student housing that may not fit Agency (Fannie/Freddie) criteria.
  • Retail Strip Centers: Anchored or unanchored centers in high-traffic urban or suburban areas.
  • Senior Living Facilities: Including independent living, assisted living, and skilled nursing.
• Aggressive Amortization & Balloon Payments: CMBS loans typically offer 25- to 30-year amortization schedules over a 5-, 7-, or 10-year term. This creates a large balloon payment at maturity, allowing investors to maximize cash flow during the hold period.
• Cash-Out Refinancing: CMBS is one of the few vehicles that consistently permits unlimited cash-out refinancing, allowing owners to extract equity to fund new acquisitions or Property Improvement Plans (PIPs).

How CMBS Loans Work

When you obtain a CMBS loan, the originating lender typically does not hold the loan for its full term. Instead, the lender packages your loan with other similar commercial real estate loans and sells the entire package to investors as bonds. These bonds are divided into different tranches with varying levels of risk and return, allowing investors with different risk tolerances to participate.

For borrowers, the key implication is that you will not work with the same lender throughout the life of the loan. Instead, a third-party servicer manages the loan on behalf of the bondholders.

Key Features of CMBS Loans

• Loan Amounts: Typically range from $2 million to $75 million for individual conduit loans; single-asset single-borrower (SASB) loans can be much larger
• Property Types: Office buildings, retail centers, industrial properties, multifamily properties, hotels, and other income-producing commercial real estate
• Terms: Commonly 5, 7, or 10 years with fixed interest rates
• Amortization: Usually 25-30 years with a balloon payment at maturity
• Non-Recourse: CMBS loans are typically non-recourse, meaning the lender can only claim the property itself if you default (subject to standard “bad boy” carve-outs for fraud, misrepresentation, etc.)

Benefits of CMBS Loans

CMBS loans offer several distinct advantages for commercial real estate borrowers:

• Higher Loan Amounts: CMBS loans can accommodate larger loan amounts than many other commercial financing options, making them suitable for substantial real estate acquisitions
• Fixed Interest Rates: CMBS loans typically carry fixed interest rates, providing payment stability and protection against rising rates
• Non-Recourse Structure: The non-recourse nature of CMBS loans limits borrower liability to the property itself
• Assumability: CMBS loans are often assumable, which can be attractive to buyers if you decide to sell the property
• Cash-Out Refinancing: CMBS loans permit cash-out refinancing, allowing you to extract equity from your property
• Flexible Property Types: CMBS lenders finance a wide variety of commercial property types

Drawbacks of CMBS Loans

While CMBS loans have advantages, they also come with some limitations:

• Prepayment Penalties: CMBS loans typically have strict prepayment restrictions, including lockout periods (1-5 years where no prepayment is allowed) followed by either defeasance or yield maintenance requirements. These penalties can be substantial
• Limited Flexibility: Because the loan has been sold to bondholders, modifications to loan terms are very difficult to obtain. The third-party servicer has limited authority to make changes
• Complex Process: The CMBS loan process is more complex than conventional financing, with additional parties involved and more extensive documentation requirements
• Reserve Requirements: CMBS loans typically require reserves for taxes, insurance, replacement costs, tenant improvements, and leasing commissions
• Market Sensitivity: CMBS loan pricing can be significantly affected by bond market conditions and volatility

CMBS Loan Qualification Requirements

CMBS lenders primarily evaluate two key metrics when underwriting loans:

• Loan-to-Value (LTV) Ratio: CMBS lenders typically lend up to 75% of the property value, meaning you need a 25% down payment or equity position
• Debt Service Coverage Ratio (DSCR): Lenders want to see that the property’s net operating income exceeds the debt service by a comfortable margin, typically looking for a DSCR of at least 1.25

CMBS lenders also consider debt yield (net operating income divided by loan amount) and typically require borrowers to have minimum net worth and liquidity thresholds, often 25% of the loan amount in net worth and 5% in liquidity.

When to Consider CMBS Loans

CMBS loans are best suited for:

• Large commercial real estate acquisitions (generally $2 million and above)
• Stabilized, income-producing properties with strong occupancy
• Borrowers who are confident they will hold the property for the full loan term
• Situations where non-recourse financing is important
• Borrowers who need fixed-rate financing with predictable payments

CMBS loans may not be appropriate if you need flexibility to modify loan terms, plan to sell or refinance before maturity, or are acquiring a property that needs significant repositioning or stabilization.

Choosing the Right Financing for Your Business

With multiple financing options available, how do you determine which is best for your business? The answer depends on several factors specific to your situation.

Consider Your Business Type and Location

Your business type and location may make certain financing options more suitable. If you are in a rural area, USDA B&I loans may offer advantages. If you are acquiring a large commercial real estate property, CMBS loans might be worth considering. For most small businesses seeking general-purpose financing, SBA 7(a) loans offer the best combination of flexibility and favorable terms.

Evaluate Your Financing Needs

Consider what you need the financing for and how much you need. SBA loans offer the most flexibility in terms of use of funds and are suitable for amounts from $50,000 to $5 million. USDA B&I loans can go up to $10 million and are particularly well-suited for projects that create rural jobs. CMBS loans are best for larger commercial real estate transactions typically starting at $2 million.

Assess Your Timeline

If you need financing quickly, SBA Express loans or conventional bank financing may be better options than standard SBA 7(a) loans or CMBS loans, which can take 60 days or longer to close. However, if favorable terms are more important than speed, the extra time required for SBA or USDA loans is often worthwhile.

Think About Long-Term Plans

Consider your long-term plans for the property or business. If you think you might sell or refinance within a few years, avoid CMBS loans due to their significant prepayment penalties. SBA loans generally offer more flexibility if your plans change.

Compare Terms and Costs

When comparing financing options, look beyond just the interest rate. Consider the total cost of borrowing including fees, the required down payment, monthly payment amounts, loan terms, prepayment penalties, and ongoing requirements such as reserve accounts.

Consult with Financing Experts

The best way to determine which financing option is right for you is to consult with experienced lenders who can evaluate your specific situation. At Peoples Bank, we can help you compare different financing options and determine which program best meets your needs and qualifications.

Common Mistakes to Avoid When Seeking Business Financing

Many business owners make avoidable mistakes when seeking financing. Being aware of these pitfalls can help you navigate the process more successfully.

Applying Before You Are Ready

One of the most common mistakes is applying for financing before your business is truly ready. Take time to strengthen your financial position, improve your credit, develop a comprehensive business plan, and organize your documentation before submitting an application. A premature application can result in denial, and multiple denials can negatively impact your credit and make future applications more difficult.

Underestimating How Much You Need

Many business owners underestimate their capital needs and request too little financing. This can leave you short on funds to fully execute your business plan. It is better to borrow slightly more than you think you need (within reason) than to run short and have to seek additional financing later, which can be difficult and expensive.

Overestimating Your Revenue or Underestimating Your Expenses

When creating financial projections, be realistic and even conservative. Overly optimistic projections raise red flags for lenders and can harm your credibility. Use solid data and reasonable assumptions when projecting your revenue and expenses.

Neglecting Your Personal Credit

Many business owners focus solely on building their business credit while neglecting their personal credit. For most small business loans, your personal credit matters significantly. Make sure your personal credit is in good shape before applying for business financing.

Not Shopping Around

Different lenders have different strengths, specialties, and underwriting criteria. Do not simply apply at the most convenient bank. Shop around and find a lender that specializes in the type of financing you need. For SBA loans, working with a preferred lender like Peoples Bank can significantly streamline the process.

Providing Incomplete or Inaccurate Information

Incomplete applications and inaccurate information create delays and can result in denial. Take the time to complete all forms thoroughly and accurately, and double-check your work before submission.

Lacking a Clear Business Plan

Applying for business financing without a clear, written business plan is a significant mistake. Your business plan is your opportunity to demonstrate that you understand your market, have a viable business model, and have thought through your financial projections. A strong business plan can be the difference between approval and denial.

Failing to Explain Credit Issues

If you have credit issues in your past, ignoring them will not make them go away. Address credit problems proactively in a letter of explanation, describing what happened, what steps you have taken to resolve the issues, and why your current situation is different. Lenders appreciate honesty and are often willing to work with borrowers who have overcome past challenges.

Not Understanding the True Cost

Make sure you understand all costs associated with your loan, including origination fees, closing costs, prepayment penalties, and any ongoing fees. Factor these costs into your financial planning so there are no surprises.

Going It Alone

Trying to navigate the business financing process without professional guidance is unnecessarily difficult. Work with experienced professionals including your lender, accountant, attorney, and business advisor. Their expertise can help you avoid mistakes and improve your chances of success.

Why Choose Peoples Bank for Your SBA Loan

Choosing the right lender is one of the most important decisions you will make in the SBA loan process. Here is why thousands of small business owners have chosen Peoples Bank for their SBA financing needs.

Preferred SBA Lender Status

Peoples Bank is a preferred SBA lender, which means we have been granted delegated authority by the Small Business Administration to approve most SBA loans without additional SBA review. This status significantly speeds up the approval process and allows us to close most loans within 60 days or less.

Over 30 Years of SBA Lending Experience

Since 1993, Peoples Bank has specialized in SBA lending. Our three decades of experience means we understand the intricacies of SBA programs and can guide you through the process efficiently and effectively. We have helped thousands of small businesses secure SBA financing and have seen virtually every situation imaginable.

Stable and Reliable Community Bank

Founded in 1908, Peoples Bank is a stable Community Development Financial Institution (CDFI) with a long history of supporting local businesses and communities. When you work with Peoples Bank, you are working with a lender that is committed to your success and the economic vitality of your community.

In-House Processing

As a preferred SBA lender, we handle all steps of the SBA loan process in-house. This means faster turnaround times, better communication, and a smoother overall experience. You will not have to deal with multiple parties or wait for third-party approvals.

Personalized Service

At Peoples Bank, you are not just a loan application number. You will work with experienced loan officers who take the time to understand your business, answer your questions, and provide personalized guidance throughout the process. We are known for our strong communication and commitment to keeping our clients informed at every stage.

Comprehensive Support

Our team does not just process your loan application. We provide comprehensive support including helping you understand which loan program is best for your needs, guiding you through document preparation, assisting with business plan development, and offering advice on how to strengthen your application. We are invested in your success.

Proven Track Record

Peoples Bank has a strong track record of successfully closing the loans we approve. Our reliable service and clear communication throughout the loan process have earned us excellent reviews and a loyal client base. We understand that you are counting on us to follow through on our commitments

Specialization in High-Dollar Transactions

Peoples Bank specializes in navigating the complex regulatory landscape of high-dollar SBA financing for Special Purpose Properties, including hotels, C-stores / gas stations, car washes, and self-storage facilities. These transactions require a sophisticated understanding of SBA-mandated Going Concern Appraisals, which must be conducted by Certified General Real Property Appraisers with specific industry experience. Whether you are managing the technical environmental requirements specific to gas station acquisitions or meeting the transient occupancy rules for hotel eligibility (where more than 50% of revenue must come from stays of 30 days or less), our team ensures your project aligns with the most current 2025 standards. By leveraging the SBA’s modernized rules for partial changes of ownership, we also provide specialized pathways for partner buyouts and generational transfers within these intensive asset classes.

Free Consultation

We offer free consultations to help you determine if an SBA loan is right for you and to answer any questions you may have about the process. There is no obligation, and we are happy to provide guidance even if you are not yet ready to apply.

Frequently Asked Questions About SBA Loans

What is the minimum credit score required for an SBA loan? The SBA does not set a specific minimum credit score requirement. However, most lenders, including Peoples Bank, typically look for credit scores of at least 620-640. We evaluate your complete financial picture, not just your credit score, and may be able to work with lower scores if you have strong compensating factors.

How long does it take to get an SBA loan? At Peoples Bank, we strive to close most SBA loans within 60 days or less from the time you submit a complete application. The exact timeline depends on the complexity of your transaction and how quickly you can provide any requested documentation. As a preferred SBA lender with delegated authority, we can often move faster than non-preferred lenders.

Can I use an SBA loan to start a new business? Yes, SBA loans can be used to start a new business. However, startups face additional requirements including the need for a comprehensive business plan, personal financial investment in the business, and often a higher down payment. Your personal credit history and relevant industry experience become even more important for startup financing.

Can I use an SBA loan to refinance existing business debt? Yes, you can use an SBA loan to refinance existing business debt under certain conditions. The refinancing must improve your cash flow or provide other tangible benefits, and you must have made all payments on the existing debt on time for at least the past 12 months. Not all debt is eligible for refinancing, so discuss your specific situation with your lender.

What down payment do I need for an SBA loan? Down payment requirements vary depending on how the funds will be used. For most purposes, including real estate purchases, SBA 7(a) loans typically require a minimum down payment of at least 10%. Hotel loans often have a higher minimum threshold of 15%. Conventional commercial loans often require 25% or more, so the SBA requirement is significantly lower.

Can I get an SBA loan if I have had bankruptcy in the past? Yes, having a bankruptcy in your past does not automatically disqualify you from obtaining an SBA loan. However, you will typically need to wait a period of time after the bankruptcy is discharged (usually 2-4 years depending on the type of bankruptcy) and demonstrate that you have rebuilt your credit and established financial stability since the bankruptcy.

Do I have to personally guarantee the SBA loan? Yes, all owners with 20% or more equity in the business are required to personally guarantee SBA loans. This is a standard requirement that protects the SBA and lender’s interests. The personal guarantee means you are personally liable for repaying the loan if your business defaults.

What fees are associated with SBA loans? SBA loans involve several fees including the SBA guarantee fee (which varies based on loan amount and term), lender fees (including origination fees), packaging fees (if you use a loan packager), appraisal fees, environmental assessment fees (for real estate), and various closing costs. Your lender will provide a detailed breakdown of all fees associated with your specific loan.

What happens if my business cannot repay the SBA loan? If your business cannot repay the SBA loan, the lender will first attempt to work with you to find a solution, which might include loan modification or forbearance. If these efforts are unsuccessful, the lender may pursue the collateral securing the loan and, due to the personal guarantee, may also pursue personal assets of the guarantors. The SBA guarantee means the government will cover a portion of the lender’s loss, but you remain personally liable for your guarantee.

Can I use an SBA loan to buy a franchise? Yes, SBA loans can be used to purchase franchises. However, the franchise must be listed in the SBA’s Franchise Directory. The SBA has reviewed and approved these franchises, streamlining the approval process. If a franchise is not in the directory, it can still potentially be financed with an SBA loan, but the process will take longer.

What is the difference between SBA 7(a) and SBA 504 loans? SBA 7(a) loans are the most versatile and can be used for almost any legitimate business purpose including working capital, equipment, real estate, and more. SBA 504 loans are specifically for purchasing or improving fixed assets like real estate or major equipment and cannot be used for working capital. The 504 program also has a unique three-party structure with a conventional lender, a Certified Development Company, and the borrower.

How much equity do I need in my business to qualify? For SBA loans, you do not necessarily need to have significant equity already in your business, but you do need to have made some personal financial investment in the business (contributed capital, not just sweat equity). For established businesses seeking refinancing or expansion, the amount of existing equity in the business will be considered as part of the overall financial picture.

Can a nonprofit organization get an SBA loan? No, SBA loans are only available to for-profit businesses. Nonprofit organizations are not eligible for SBA loan programs. However, nonprofits may qualify for other types of financing through grants, bonds, or specialized nonprofit lenders.

What if I need more than the maximum SBA 7(a) loan amount of $5 million? If you need more than $5 million, you have several options. You might consider the SBA 504 program in combination with a 7(a) loan, conventional financing, CMBS loans (for commercial real estate), or USDA lending products. Discuss your needs with your lender to determine the best approach for your situation.

Will I need an appraisal for my SBA loan? If your loan involves real estate, an appraisal will be required to establish the property’s value. The appraisal must be performed by a licensed appraiser and meets SBA standards. Appraisal fees are typically paid by the borrower and are part of the closing costs.

What is the SBA guarantee fee and who pays it? The SBA guarantee fee is a fee charged by the SBA for providing the loan guarantee. The fee percentage varies based on the loan amount and term but typically ranges from 0% to 3.75% of the guaranteed portion of the loan. This fee is typically passed on to the borrower and can sometimes be financed as part of the loan amount.

Can I have more than one SBA loan at a time? Yes, you can have multiple SBA loans, but there are limits. The total amount of SBA 7(a) financing you can have outstanding at any one time is $5 million. If you already have an SBA loan, you will need to account for that when applying for additional SBA financing.

What industries are ineligible for SBA loans? Certain business types are ineligible for SBA loans including businesses primarily engaged in lending or investment activities, speculation, multi-level marketing, gambling, charitable or religious activities (though some nonprofits structured as for-profit entities may qualify), and businesses whose products or services are illegal under federal law.

Can I use SBA loan funds for marketing and advertising? Yes, marketing and advertising expenses can be included as part of the working capital component of an SBA loan. These are considered legitimate business expenses necessary for business operations and growth.

What if my application is denied? If your SBA loan application is denied, ask for a detailed explanation of the reasons for denial. You may be able to address the issues and reapply, or you might consider alternative financing options. An experienced lender like Peoples Bank can often help you understand what needs to be improved and work with you to strengthen your application for future consideration.

What is the “Credit Elsewhere” test in 2025? The lender must certify that you cannot obtain the same terms conventionally. Common justifications include the need for a longer maturity (e.g., 25 years for real estate) or a lower down payment than a conventional bank’s policy allows.

Are there prepayment penalties on SBA 7(a) loans? For loans with maturities of 15 years or longer, a “Subsidy Recoupment Fee” applies only if you prepay more than 25% of the loan in the first three years (5% in year 1, 3% in year 2, and 1% in year 3).

Is my business small enough for an SBA loan? Most businesses qualify if they have a tangible net worth under $20 million and an average net income after taxes under $6.5 million for the previous two fiscal years.

Does my extended-stay hotel qualify for SBA financing? Under SOP 50 10 8, a hotel or motel is eligible if more than 50% of its revenue is derived from transients who stay for 30 days or less at a time. If your project is a start-up, your financial projections must demonstrate that you will meet this 50% transient occupancy threshold.

What are the current interest rate caps for a large SBA 7(a) hotel loan? For loans greater than $350,000, the maximum allowable variable interest rate is the Base Rate (typically WSJ Prime) plus a spread of 3.0%. This simplified tier applies regardless of the loan’s maturity.

Can I use an SBA loan to buy out a silent partner in my hotel? Yes. A major 2025 update to the SOP explicitly allows for partial changes of ownership. A 7(a) loan can now be used by an Operating Company to fund a buyout of one or more existing owners or to bring on new owners, provided the business meets a 9:1 debt-to-worth ratio (or contributes at least 10% equity).

What is a “Going Concern” appraisal and why is it required? Hotels are classified by the SBA as Special Purpose Properties. For these properties, if the amount being financed (minus the appraised value of real estate and equipment) exceeds $250,000, the SBA requires a business valuation performed by a Certified General Real Property Appraiser. This appraiser must have completed at least four going concern appraisals of equivalent special-use properties in the last 36 months.

What is the minimum Debt Service Coverage Ratio (DSCR) for a large hotel loan? For Standard 7(a) loans (over $350,000), the applicant’s debt service coverage ratio (Operating Cash Flow / Debt Service) must be equal to or greater than 1.15 on a historical and/or projected basis.

When is my spouse required to guarantee the loan? A personal guaranty is required from any individual owning 20% or more of the business. A non-owner spouse must personally guarantee the loan in full only if the combined ownership interest of both spouses is 20% or more.

How much collateral is required for a large hotel acquisition? The SBA considers a loan “fully secured” if the lender takes a security interest in all available fixed assets (land, structures, machinery, and equipment) up to the loan amount. If there is a collateral shortfall, the lender must take available equity in personal real estate (residential or investment) solely owned by any 20% owner.

Can I refinance existing high-interest hotel debt with an SBA 7(a) loan? Yes, 7(a) proceeds can refinance existing business debt, including demand notes and balloon payments. The new loan must typically provide at least a 10% improvement to the monthly payment, and the debt must have been current for the last 12 months.

Frequently Asked Questions About USDA B&I Loans

Can an urban-based hospitality group get a USDA hotel loan? Yes. While the project must be located in a rural area (population $\le$ 50,000), the borrower’s headquarters and the lender can be located anywhere in the United States.

What is the minimum equity requirement for a new rural hotel? For new businesses or startups (operating for less than two years), the USDA requires a tangible balance sheet equity of at least 20%. For existing hotel acquisitions or refinances, this requirement is typically reduced to 10%.

How does the USDA define “Transient Occupancy” for hotels? To qualify for the B&I program, the facility must be open to the general public and primarily serve “transient” guests. Most lenders follow the standard benchmark that more than 50% of revenue must be derived from guests staying 30 days or less.

What are the USDA B&I loan fees for 2025? As of late 2025, the USDA typically charges an initial guarantee fee of 3% of the guaranteed amount and an annual renewal fee of 0.50% to 0.55% of the outstanding principal balance.

Does a USDA loan require a personal guarantee? Yes. Much like SBA loans, the USDA requires a full personal guarantee from all owners with a 20% or greater stake in the business.

Frequently Asked Questions About CMBS Loans

What is the minimum loan size for a CMBS loan? CMBS financing typically starts at a minimum of $2 million, with no maximum loan amount, making it ideal for large-scale commercial acquisitions.

What are the DSCR requirements for different CMBS asset classes? Underwriting is primarily based on the property’s Net Operating Income (NOI). Minimum Debt Service Coverage Ratios (DSCR) generally follow these benchmarks:

• Multifamily/Apartments: 1.20x – 1.35x.
• Retail Strip Centers: 1.25x – 1.40x.
• Hotels & Senior Living: 1.35x – 1.50x (due to higher operational intensity).

Does CMBS allow for “Partial Interest-Only” periods? Yes. Many CMBS structures offer Interest-Only (I/O) payments for the first 1–5 years, or even for the full term for lower-leverage, well-stabilized assets, further maximizing investor IRR.

How do prepayment penalties work in CMBS? CMBS loans use Defeasance or Yield Maintenance to protect bondholder yields. While these structures provide fixed-rate stability, they are designed for investors who plan to hold the asset for the full loan term or who utilize the fully assumable nature of the loan during a sale.

What are the borrower net worth and liquidity requirements? While CMBS is non-recourse, lenders typically require the key principal(s) to have a net worth of at least 25% of the loan amount and liquidity of at least 5%.