Liquor Store Business Loans From the SBA
Liquor store loans are a preferred type of business loan for some SBA banks and lenders because liquor stores (and wine stores) are profitable in almost any economic environment.
Liquor Store Loans – 100% Financing
100% financing is possible if you are purchasing a building you have been leasing or if you are moving from leasing space to owning a building – click here for info ab0ut 100% financing for real estate.
90% financing is the norm for a business acquisition, although 5% can come from the seller (see info below re: down payment/equity).
It may also be possible to get 100% financing for an expansion of an existing liquor business to either purchase another business that would become part of your existing business or to expand to a new location. Only the stronger borrowers will qualify for 100% expansion loans, but it is possible.
SBA Liquor Store Loans
The SBA offers 2 programs – the 7a and the 504 – as financing solutions for a liquor store, wine store or beer distributor depending on whether or not you are purchasing a business, a business and building 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
- ground up construction for an expansion or startup
- goodwill/blue sky, working capital, debt consolidation, tenant improvements/build out, inventory (occassionally)
The 504 can only be used to purchase, build or 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 looking for funding for a liquor business then the 7a is a good solution as it allows you to finance goodwill, inventory and working capital ifthe cash flow of the business is strong enough. (Not all lenders like to finance inventory so that can be a bit of a wild card).
Recent Liquor Store Business Fundings
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 use of proceeds 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.
Whether the loan includes real estate or not, most conservative lenders will offer financing with 10% down. The more aggressive lenders will consider zero down but the trade off is usually a higher rate. Also, the 100% lenders typically have a hard time doing smaller loans. “Smaller” is typically defined as under $300K.
As mentioned above, since the 7a actually has no minimum down payment requirement it is possible to get financing for an expanding business or one that is moving from leasing to owning without a down payment as long as the business has solid financials and the borrower(s) have good credit.
In order to qualify for better terms loans can also be structured with 10% down where the 1o% comes from another source. The SBA is flexible with regard to the source of the down payment.
Possible Sources of Down Payment for SBA Loan
- Money that is borrowed if you have another source of income or a spouse with income and can prove you can affored the payments on the borrowed money
- Seller held funds on “full standby” – no payments to be made on the seller held debt for as long as you have the SBA loan and borrower must inject at least 5% of their own cash
- 401k from a former employer or self directed IRA – both of these can be done tax and penalty free in some situations. Minimum down might need to be 50K for this to work due to expenses related to rolling over retirement account into the business
- Equity in another business or business property that is pledged in lieu of down payment
Liquor business experience is not necessarily required to get a loan. It can really help, but most lenders can get comfortable with borrowers with some level of business or business management experience, especially if the seller is willing to stay on for little while to help you learn what you need to know.
Obviously the “better” deals with stronger, more experienced borrowers will receive more favorable terms.
Seller Held Second Mortgage
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 as long you have the SBA loan. Keep in mind, there is NO prepayment penalty on SBA loans with terms shorter than 15 years.
Liquor Store Building and Construction Loans
Construction loans are possible under both the 7a and the 504, but the 7a is a much cleaner process as it is just one loan with one underwriter/lender. Qualified borrowers can build a new liquor store from the ground up or purchase another space and renovate it.
Bottom Line on Liquor Store Financing
SBA loan programs are attractive to borrowers because they:
- offer financing that is available with 10% or less down
- have flexible structures
- 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.