New SBA Loans Qualify For 6 Months of Free FinaUnder The CARES Act
Our client, “Borrowing Bob”, financed the purchase of several restaurants and decided to refinance all his loans using the Small Business Administration (SBA) loan programs. After the pandemic hit, Borrowing Bob was able to take advantage of the recently enacted Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which helps small business owners withstand the impact of economic disruption due to COVID-19. Fortunately for Bob the CARES Act provided him an unexpected and very much welcomed financial benefit.
As part of their first stimulus package, Congress passed the Paycheck Protection Program (PPP), the Economic Injury Disaster Loans (EIDL), and the CARES Act to help small business owners. The CARES Act provides debt forgiveness through the SBA. Business borrowers who secure loans either for new business purchases or refinancing will automatically have their payments made by the SBA for the first six months of the loan.
For loans made after March 27, 2020 and fully disbursed by September 27, 2020, SBA will make the first six monthly payments due on the loan. This debt forgiveness is automatic and does not require any additional applications. Unfortunately, existing SBA 7(a) and 504 loans cannot be refinanced with another SBA 7(a) loan.
We refinanced all of Borrowing Bob’s SBA loans into one new SBA 7(a) loan. Bob’s SBA loan amount is approximately $3 million amortized over 10 years at 5.5% rate of interest. While his new monthly payments are now $32,557.88, the SBA will be paying Borrowing Bob first 6 months payments resulting in a saving of $195,347.30! Bob closed in April and won’t have his first payment due until November, 2020. Needless to say, this major cost-saving and payment delay provides Borrowing Bob some much needed breathing room and plenty of time to make business adjustments to the new normal posed by COVID-19.
SBA 504 Rates Current As of May, 2020
| 25-YEAR 2.76% 25-YEAR REFI 2.76%  | 20-YEAR 2.68% 20-YEAR REFI 2.68% | 10-YEAR 2.64% 10-YEAR REFI 2.64% |
Rates are at historic lows for both SBA 7(a) (general purpose business loans & related commercial real estate) and SBA 504 (equipment & commercial real estate). Business buyers and owners seeking to refinance who secure either SBA 504 or 7(a) loans by the end of July will also be able to have SBA pay the first 6 months of the loan under the CARES Act. This provides a great opportunity to leverage these SBA programs for new and existing debt.
Additionally, for SBA 504 refinancing, business owners may:
- Finance up to 90% of the appraised value of the commercial property
- Lower monthly payment with low-interest, fixed-rate loans that are amortized up to 25 years
- Consolidate multiple loans
- Use loan proceeds for qualified business expenditures such as salaries, inventory, etc .
- Use the commercial property equity in lieu of a cash down payment
SBA 7(a) Loan Rates Current As of May, 2020
| Loan Amount | Repayment Less Than 10 Years (Business Only) | Repayment More Than 10 Years (Business & Commercial Real Estate) |
| 50,000 to 5,000,000 | Prime rate + 2.25% | Prime rate + 1.25% |
For additional information on all the SBA options available to business owners through the CARES Act, check out the SBA website here. You can also download the SBA’s Small Business Guide regarding the CARES Act.
SBA 504 Loan vs. SBA 7(a) Loan Comparison
| SBA 504 LOAN (Commercial Real Estate & Equipment) | SBA 7(a) LOAN (General Purpose) | |
|---|---|---|
| LOAN SIZE | Minimum – $125,000 Maximum – $20 million + | Minimum – $50,000 Maximum – $5 million |
| INTEREST RATE | • Fixed | • Predominantly variable; some fixed-rate options |
| TERMS | • 25 years – real estate • 20 years – real estate • 10 years – equipment | • Up to 25 years – real estate • Up to 10 years – business acquisition, equipment • 5 to 7 years – working capital • Weighted average for mixed-use requests |
| DOWN PAYMENT | • 10% borrower | • Minimum 10% borrower (often more) |
If you are interested in taking advantage of the CARES Act either by purchasing a new business with or without commercial real estate or refinancing your existing SBA loans, contact Mission Peak Brokers and let us help you secure 6 free months of financing with lower interest rates and payments.
The information shared here is for informational purposes only and is not intended nor should be construed as investment, tax, financial or legal advice. Should you need professional advice, consult with a licensed professional concerning your specific situation.
