Getting a commercial loan can be challenging. Working with our SBA Loan Brokers will optimize your chances of getting your loan approved. Whether you are pursuing a little corner store or a multi-million dollar business, you can trust that we know how to secure your financing to help you get the deal done.
No. It’s a very common misconception that the SBA is a commercial lender. Going through the application process, borrowers are oriented towards SBA guidelines, rules, regulations in addition to the application process. Nonetheless, the SBA, itself, does not lend money. Instead, the SBA creates and regulates a variety of small business lending programs that lenders and banking institutions participate in.
The SBA does guarantee a portion of the loan, as does your lender.
The SBA has several types of commercial loan options. At Mission Peak Brokers, we broker SBA 7a loans and SBA 504 loans.
SBA 7a Loans are business loans that are guaranteed by the Small Business Administration (SBA). The SBA is not a lender but part of the federal government that oversees, regulates and guarantees repayment to lenders if the borrower defaults on the loan.
SBA 7a loans max out at $5 million. The most popular SBA loan is a 7a loan which permits the borrower to acquire a business or a business with commercial real estate.
Commercial lenders and banks provide SBA 7a loans.
It all starts with an SBA Loan Application. To qualify for an SBA loan, you will need to complete an SBA Loan Application and submit it along with documentation such as business, tax and financial records. For business acquisitions, you must also provide the business sale contract and supporting documents.
As to the applicant’s financial and credit history, in general, when the borrowers’ credit is not strong, then the business cashflow should be strong.
The SBA loan down payment is determined based on several factors but primarily on:
1. The cash flow of business & property &
2. The buyers credit score, liquidity and existing assets.
It depends on the borrower and the deal. Lenders will evaluate a number of factors to determine the minimum down-payment.
Generally speaking, anticipate a 10% down payment for business with property.
When the borrower is only acquiring the business, anticipate a 20% – 25% down payment.
On bigger deals, our SBA Loan Brokers have seen lenders require 10% on the commercial real estate portion and 25% on the business portion.
The down payment could stay at a minimum level if:
In some cases, a lender might ask a weaker borrower to provide outside collateral, such as real estate owned by the borrower, as security to justify the loan approval.
Yes and no.
Every situation is different but if the business that is being acquired does not have strong cashflow or the borrower has poor credit, then outside collateral will likely be necessary.
SBA policy requires borrowers who own real estate to pledge the property as additional collateral. If a borrower owns several properties, the SBA requires that we take collateral to “FULLY COLLATERALIZE” the loan.
Banks discount the current market value of the real estate by 80% and deduct the current mortgage balance to calculate the available equity. Sometimes banks will take the residence as collateral if it does not have any attachable equity.
For borrowers with less than perfect credit, an SBA 7a loan may still obtained if the borrower has strong income and assets with equity.
SBA 7a loans can be used to buy a business or obtain working capital. The maximum loan for an SBA 7a loan amount is $5 million. The interest rate on a 7a loan, however, can be adjustable and tied to the prime interest rate. Collateral is required, at 90 percent. These loans are amortized over 25 years.
On the other hand, an SBA 504 loan is commercial real estate financing for owner-occupied properties. These loans require only a 10 percent down payment by the small business owner and funding amounts range from $125,000 to $20 million. A 504 loan’s interest rate is fixed, and no outside collateral is required. Also, fees are lower compared to a 7a loan. Also, 504 loans are amortized over 20 years, and as of April 2018 they began accepting applications for 25-year term SBA 504 loans.
When a business acquisition is combined with a commercial real estate purchase and/or there is a need to borrow working capital. All of these borrowing needs can be rolled into one SBA 7A loan.
SBA 504 loans may not be used for working capital.