SBA Advantage Loans for Commercial Property, Business Purchase, Working Capital, Debt Consolidation & More
The Small Business Administration 7a loan - now known as the SBA Advantage Loan - is very flexible and can be used for "any legitimate business purpose."
The maximum 7a loan is $5 million and a business can have a tangible net worth of up to $15 million and net (after tax) income up to $5 million and still qualify.
25 Year Fixed Rate Commercial Real Estate Financing
25 year fixed rate loans are available for owner occupied commercial properties at very competitive rates for solid businesses. The required down payment for the 25 year fixed will vary - it could be as little as 10% for stronger borrowers - and you will need good credit and the business must have solid, consistent cash flow.
Please contact us at 1-800-414-5285 for details on what it takes to qualify. (Most property types are eligible).
100% financing is available with the Advantage Loan for established businesses purchasing, refinancing or constructing general purpose or multi-use buildings. You will also need good credit, solid, consistent cash flow. You can read more about it here.
100% 7a for Medical, Dental and Veterinary Practices
The 7a and the 504 are some of the only commercial loans available for those who do not have a lot of equity or a large down payment. In fact, 7a loans are available up to 100% loan to value for the following business types:
By contrast, the 504 loan is for real estate and equipment only and requires at least 10% down or 10% equity, although technically you can pledge equity from another eligible commercial property.
The 7a loan may also be your best option to refinance your current business or commercial real estate loan (possibly up to 25 years). Among other things, it can be used to refinance the following types of business debt:
- Long term debt with a balloon
- Business credit card debt – as long as you can show it was used for business purposes
- Revolving lines of credit
SBA 7a Loan Program Information and Eligible Uses
7a loans can be used for most business purposes, including:
- Refinance of Commercial Real Estate
- Construction of a New Building
- Refinance of Business Debt
- Purchase of an Existing Business
- Working Capital
- Purchase of Real Estate
- Tenant Improvements
- Equipment Financing
25 Year Fully Amortizing Loans for Commercial Real Estate
Advantage Loans that include real estate are typically easier to qualfiy for and also easier to get higher leverage with, since lenders are more comfortable using a commercial building as collateral.
In fact, the major advantage of the 7a over most other commercial loans is that if business real estate is the largest percentage of the new loan then a 25 year amortization is possible.
Loans that do not include commercial real estate (like business acquisitions) or are loans that are "under collateralized" are getting funded if the business has strong, steady cash flow...or if the owners of the business have enough outside income from other sources.
Gift Funds and Borrowing the Down Payment
The 7a program is also flexible with regard to the source of the down payment as it allows gifts from family members or borrowed funds using another asset (i.e. a home equity line or a retirement account) as collateral, but you must have the ability to repay the borrowed funds from another source (not from the business you are purchasing). Acceptable sources could be another business or job you have or income from a spouse.
Additional Sources of Down Payment
In addition to gifts and borrowed funds, the 7a is also fairly flexible with regard to equity contributions from the seller.
In addition to seasoned cash/assets in bank/asset accounts, SBA allows equity in the form of a second mortgage from the seller of the business. They allow the seller of the business to take back a second mortgage as equity IF the second mortgage is on what is called either "Full (or partial) Standby" for 2 years. Full standy by means that no payments can be due for 2 years - although interest can accrue during this period and "Partial Standby" means that interest only payments would be made for the 2 year period.
In order to qualify for partial standby the business must be able to cash flow the additional monthly payment.
Recent Creative Funding:
Client purchased a manufacturing business and building for $5 million with $6500 out of pocket, a seller held 2nd mortgage, an SBA loan of $2 million that we arranged and a $2 million accounts receivable and inventory line that we arranged. Client worked as CFO for the business for many years and was intimately familiar with every aspect of the business, so the lenders were able to be flexible in the financing structure.
Please call us at 1-800-414-5285 for more info about 100% financing with the 7a or leveraging equity in another property.
Business Acquisitions with Goodwill
The 7a can be used to buy a businesses that includes a lot of goodwill.
Technically, SBA does not require a down payment for a business acquisition, but almost all lenders will require enough of a down payment to make them comfortable that you are fully committed to the business - i.e. that you have enough "skin in the game."
There are exceptions such as the professional practices mentioned above and some lenders will also consider 100% financing for industries with very low historical default rates and/or an individual business with extremely strong cash flow, but that is rare.
20% Down is Typical for Most Businesses Without Help From the Seller
Most lenders will require a down payment of 20% for a business purchase using the 7a/Advantage loan where no real estate is included,. however many business purchases are structured with the borrower coming in with 10% down and the seller holding a 2nd mortgage of approx 15% (possibly on "stand by"), so if you have a willing seller you might be able to purchase a business with 10% down.
SBA will limit the term of a non-real estate loan to 10 years and they require that any building leases will last for (or at least has options for) up to 10 years.
Please note: the Small Business Administration defines what can be done and they guarantee loans for lenders, but you still have to rely on a bank or an SBA approved lender to secure financing.
Please contact us at 1-800-414-5285 for clarification on any of the above.
More SBA Eligibility
The 7a loan/Advantage loan limit of $5 million is not only a maximum loan amount, but it also serves as a maximum threshold for eligibility because the SBA uses the same figure to determine how much SBA eligibility a business owner can have.
In other words, you can have just one loan of $5 million or you can have multiple loans totaling $5 million. This is significant for those in need of additional financing to either purchase or refinance additional businesses or locations.
If you need more than $5 million in SBA eligibility then consider the 504 loan program or the "Green 504" program. The "regular" 504 can now be used for projects in the $12 to $20 million range and the Energy Efficient/Green 504 can accommodate multiple projects using maximum financing with technically no cap on eligibility for the same borrower/business.
7a Loan Rates
7a loan rates are typically Prime plus a margin not to exceed 2.75% and the rate you can expect to receive is typically based on the strength of your loan.
Some lenders will offer attractive 3, 5 or 10 year fixed rates and even 25 year fixed rates are available for some of the stronger transactions.
The 7a loan is a little easier for lenders to approve at the moment because:
- Banks and lenders can sell the loans for a higher premium (profit) on the secondary market.
- 7a loans offer a 75% guaranty from the SBA which reduces the required capital and reserves a bank needs to make a loan which, in turn, enables banks to do more lending.
The 504 loan, while an excellent low risk loan still has some risk for a lender, because the SBA guarantee only covers the SBA debenture (or second mortgage) and in the case of default the bank is on the hook for amount of the first mortgage - typically 50% of the total project cost.
Of Note: No Financial Covenants
Keep in mind that 7a loans rarely have the types of "financial covenants" that haunted businesses a few years ago, so if the economy hits another recession and property values were to drop it would be highly unusual for you to lose your property because you no longer have enough equity.
Unfortunately, this happened to many businesses with conventional loans during the Great Recession. Businesses who were making their payments on time still lost their buildings because their banks needed them to have more equity to satisfy regulators and called their loans due.
This would be unusual with an SBA loan as it is extremely rare for a bank or lender to impose covenants related to cash flow coverage and other financial ratios once the loan is closed. The key issue is that you make your payments on time.
Please contact us at 1-800-414-5285 if you need more information re: qualifying, eligibility under the new guidelines or timing for approval with the SBA Advantage Loan.
Alternatives to SBA Financing
Even if you meet SBA approval guidelines, there is still no guarantee that you will find financing in the current credit environment. Banks and lenders are still extremely risk averse and the reality is that some good loans are not being approved. There is an alternative however..."Asset Based Loans."
Asset Based Loans are an alternative to SBA lending where a lender secures the loan with an asset - anything from purchase orders, to accounts receivable to equipment or inventory and some programs are available for A through D credit.
If we are unable to help you with SBA financing one of these alternatives may be possible:
- Accounts Receivable Financing
- Equipment Financing and Leasing
- Purchase Order Financing
- Financial Contract Amortization
- Service Contract Amortization
- Medical Equipment Financing
- Merchant Credit Card Advance Lending
- Construction Project Financing
- Tenant Improvement Financing
Please remember, in most cases we do not charge a fee for assisting you with either an SBA 7a loan or an Asset Based Loan. Please contact us if you have any questions about how to qualify for either.
You can call us toll free at 1-800-414-5285