Liquor Store Business Loans From the SBA
Liquor stores do well in almost any economic environment and because of that, banks and lenders are typically interested in providing financing for them - and frequently with an SBA loan.
The SBA offers 2 programs - the 7a and the 504 - that can be good financing solutions for a liquor store, wine store or beer distributor depending on whether or not you are purchasing a business or just a building:
The 7a can be used for all of the following:
- buying a business
- refinancing a business
- buying a business and a building
- refinancing a business and building
The 504 can only be used to purchase, build or (possibly) to refinance a building.
Buy a Liquor Store With or Without Real Estate
7a loans are "cash flow loans" and they can be quite flexible. They allow for creative financing structures as well as financing for business acquisitions that do not include commercial real estate, so if you are buying a store and it includes some intangibles then the 7a is the right program for you.
It is a very flexible program as it allows you to finance goodwill, inventory and working capital if the cash flow is strong enough.
We recently helped a client obtain an SBA loan for a liquor business in Texas. The cash flow of the store was marginal, but it was in a good location and the borrower had very good experience in the industry as well as a spouse with a solid job. We talked to many lenders about funding the loan - most decided against it, but we were able to find a strong local lender who believed the borrower's experience would lead to increased sales and they closed the loan.
We also recently helped another client in New England (who operates a local restaurant) obtain financing for a 2 location liquor store business. The purchase price of approx $2 million included over $1 million in goodwill and in working with the seller and the lender we were able to structure the transaction with only 11% out of pocket from the borrower to finance the business, the real estate and the inventory. It helped that the seller was retiring and getting a large amount of cash and therefore willing to hold a large second mortgage. The cash flow for the business was steady and it had the added benefit of having a few apartments upstairs that the borrower planned to renovate and lease out for additional income.
The term and down payment of a 7a are determined by the use of loan proceeds and whether or not it includes a commercial building.
- If the loan includes a building and that building is the largest percentage of the loan then it is possible to finance the entire amount over 25 years.
- If it is just a business purchase (without a building) then the maximum term of the loan is 10 years.
If a large enough percentage of the financing request is real estate, then lenders will consider offering financing with 10% down. The 7a actually has no minimum down payment requirement, so it is technically possible to get financing for an expanding business without a down payment as long as there is significant other equity/collateral that can be pledged in lieu of a down payment, but most lenders will not consider such a request.
If the transaction is just a liquor store business purchase, then most lenders these days will require 20% down, but keep in mind that every situation is unique and lenders will take into consideration other facts about the loan request, so 20% is not a rule, but more of a market trend at the moment. For instance, if the store being acquired has excellent cash flow and the borrower(s) have a lot of equity in another store or cash reserves then a lender may consider less of a down payment.
Also, it is fairly common for the seller of a store to hold a second mortgage in lieu of the borrowers putting more money down, but for a lender to consider the seller 2nd as "real" equity (as if it is part of the borrower's down payment) it will need to be structured with no payments due for 2 years.
Lenders frequently allow a structure where a borrower brings 10% equity and the seller holds a 15% second mortgage.
Construction loans are some of the hardest loans to get in the current credit environment, but it is certainly possible for well qualified borrowers to build a new liquor store - or purchase another space and renovate it - especially if it is an expansion of an existing business with strong cash flow from their other stores.
SBA loan programs are attractive to borrowers because they:
- offer financing that is actually available at the moment
- have a low down payment requirement
- offer a long term amortization
- typically have a low rate
SBA loans are attractive to lenders because they receive a guarantee from the Small Business Administration that protects them the event of default and the loans are very profitable for lenders.
Click here for more info about the 7a loan program.
Please contact us at 1-800-414-5285 for more info.