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SBA 504 Q&A: Requirements for Using Equity in Real Estate

Oct 2016

Q: A borrower wants to use the equity in their property rather than injecting cash, but they don't have an appraisal. Can the borrower submit the loan request without an appraisal and state they are going to use equity once the appraisal is available?

A: To use equity in the property, the Small Business Administration (SBA) requires that the appraisal be submitted with the application and the request to use any equity be made at time of application. The SBA will not allow a change after the project has been authorized.

If the property was purchased less than 2 years ago, the SBA will use the cost and not require an appraisal. The one exception would be if the property was purchased within the last 2 years in a less than arm's length transaction, meaning it was purchased from a related person or entity. The SBA would not allow the use of the cost, but require an appraisal.

If you have a question you'd like our SBA 504 loan experts to answer, email us atinfo@ffcfc.comor call 850.681.3601 or toll-free at 888.320.5504.