SBA 7(a) Construction Loan to SBA 504 Refinance
SBA 7(a) Construction Loan to SBA 504 Refinance
An SBA 7(a) construction loan can be refinanced into an SBA 504 structure after completion, and we offer a true 25-year fixed-rate option on the senior (50%) bank debt, in addition to the fixed-rate SBA 504 debenture on the junior lien. This provides long-term, full-stack rate certainty that is rarely available in the market.
Why This Structure Exists
Many commercial real estate projects—especially ground-up developments—are not immediately eligible for SBA 504 financing due to:
Construction risk
Lack of stabilized cash flow
Unfinalized project costs
The SBA 7(a) program is used as a flexible construction and interim financing tool, with a planned refinance into SBA 504 once the project is complete and placed in service.
Phase 1: SBA 7(a) Construction Loan
Purpose
Land acquisition
Ground-up construction
Infrastructure and soft costs
Phased development and lease-up
Typical Characteristics
Single interim loan
Interest-only during construction
10–15% borrower equity
12–24 month construction and stabilization period
The key advantage of SBA 7(a) is flexibility during uncertainty, which is critical for construction-heavy projects.
Phase 2: SBA 504 Refinance (Post-Construction)
Once construction is complete and the property is operational, the loan is refinanced into an SBA 504 structure.
Standard SBA 504 Capital Stack
50% Senior Bank Loan
40% SBA 504 CDC Debenture (Junior Lien)
10% Borrower Equity
(15% if startup or special-purpose)
Fixed-Rate Debt on Both Liens
Junior Lien (SBA 504 CDC Debenture)
Fixed interest rate
20- or 25-year term
Fully amortizing
Rate locked at debenture funding
This is standard in all SBA 504 transactions.
Senior Lien (Bank Debt): Our Differentiator
Most SBA 504 transactions feature:
Variable-rate senior debt, or
Short-term fixed rates (5–10 years)
Our structure is different.
We offer:
True 25-year fixed-rate senior debt
Fully amortizing
No balloon
No rate resets
No interest-rate hedging required
This creates long-term certainty across the entire capital stack.
Why the 25-Year Fixed Senior Option Is Rare
Requires balance-sheet commitment from the bank
Must be structured intentionally from the construction phase
Requires proper refinance language and documentation
Not widely offered by SBA lenders
Deals that are not properly papered from day one typically lose this option.
What “Properly Papered” Means
To preserve the 25-year fixed senior takeout, the SBA 7(a) construction loan must include:
Clear SBA 504 refinance intent
No restrictive prepayment penalties
Lien release and assignment provisions
Construction completion definitions aligned with 504 rules
An experienced SBA lender managing both phases
This is where most deals fail—and where experience matters.
Ideal Use Cases
This structure is particularly effective for:
RV and boat storage facilities
Self-storage developments
Owner-occupied industrial projects
Specialty real estate with phased construction
Long-term hold investors prioritizing cash flow stability
Bottom Line
An SBA 7(a) construction loan followed by an SBA 504 refinance is already a powerful financing strategy.
When combined with a 25-year fixed-rate option on the senior debt, it becomes a best-in-class capital solution:
Long-term fixed rates on both liens
Predictable debt service
Maximum leverage
Reduced refinance risk
Enhanced asset value
The advantage is not the SBA program itself—it’s how the deal is structured from day one.