Financing Ground‑Up Construction: Choosing Between SBA 504 and Conventional Loans
The Stakes
Selecting a financing vehicle for your new facility isn’t just a paperwork chore—it shapes monthly cash flow, decision flexibility, and long‑term equity. Two heavy hitters dominate the owner‑occupied arena: SBA 504 loans and conventional commercial construction loans.
SBA 504 Snapshot
An SBA 504 loan pairs a conventional lender with a Certified Development Company. The bank lends roughly half the project cost, the CDC finances up to 40 percent at a fixed rate that can span 25 years, and you—the borrower—bring as little as 10 percent equity to the table.
Ideal fit: Entrepreneurs building or buying their own real estate—manufacturers, medical practices, specialty contractors—who value low down payments and predictable, long‑term interest rates. The flip side? Paperwork is intensive and project caps generally top out in the mid‑single‑millions.
Conventional Lending Snapshot
Traditional banks and private lenders offer speed and scale. Expect a larger equity requirement—often 20 to 30 percent—but fewer usage restrictions and quicker approvals. Interest rates may float or reset, meaning your monthly nut can change over time—good if rates drop, challenging if they spike.
Ideal fit: Investor‑led developments, larger multi‑tenant projects, or owners wanting bundled working‑capital lines. Flexibility comes at the price of higher equity and potential rate volatility.
Decision Filters
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Equity Preservation – If preserving cash is priority #1 and your project size fits within SBA limits, the 504’s low down payment is tough to beat.
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Speed to Close – Conventional lenders often approve in weeks, not months—crucial when land sellers demand quick closings.
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Rate Certainty vs. Flexibility – Fixed vs. floating matters. If a rising‑rate climate keeps you up at night, locking in a 504 may bring peace of mind.
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Growth Plans – Conventional lines can fund future tenant improvements or expansion without a new SBA approval cycle.
Pro Tip
Whichever path you choose, involve your GC early. Lenders lean heavily on construction budgets and schedules; a contractor’s accurate project pro forma can shorten credit‑committee review times and prevent loan re‑writes mid‑build.
Email us today @ projects@txbuiltconstruction.com or call us @ (972) 219-0729.