Can an SBA loan buy land to build on later?
Short answer
Only as part of an eligible project you will use now. SOP 50 10 8.1 bars proceeds for land held for future development and for excess land not for immediate use in the project. Source: Sec. A, Ch. 3, Paras. A and B; 13 CFR § 120.130(d).
Land qualifies only when it is part of an eligible project. SOP 50 10 8.1, Section A, Ch. 3, Para. A, lets proceeds acquire land by purchase or lease as part of an eligible project. Para. B bars investment in property held primarily for future development, sale, lease or investment.
Excess land
The SOP defines excess land as land that is not for immediate use as part of the project. SBA loan proceeds cannot fund it. The SOP gives no acreage test.
Farm enterprises get the same message. Land beyond what the farming operation needs is not eligible, and excess land bought at the same time needs financing from other sources.
What else proceeds can pay for
- Site improvements such as grading, streets, parking lots and landscaping, including up to 5% for community improvements such as curbs and sidewalks.
- New buildings and the conversion, expansion or renovation of existing ones.
Land you already own, on a 504
Land that is part of the project can count toward your contribution (13 CFR § 120.911). If you bought it less than 2 years before applying, it is valued at cost. At 2 years or more, an independent appraisal sets fair market value (Section C, Ch. 1, Para. C.1).
Collateral value
On a Standard 7(a) loan, unimproved real estate counts at 50% of market value in the fully secured test (Appendix 19, Para. B.1).
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