SBA Loans - San Diego

Lightning Commercial Funding

SBA Loan Contribution Discussion

Contribution; of both types, equity and debt will be discussed.  Equity clearly reflects any cash injection that the buyer or seller are making towards the transaction, and debt is obviously any loan monies provide, whether from a bank or a private lenders such as a family member.

At typical transaction will be financed with a combination of the two.  The buyer of the business or investment will be putting money into escrow, known as the initial down-payment, and the seller will be typically carrying some paper back with the balance coming from the PLP (Preferred Lender Provider), an institution that is authorized to make SBA Loans without initial approval by the SBA.

There are specific requirement as to the Use Of Proceeds.

As an aside no matter who your broker to the transaction is or if the client is going to handle the loan themselves, make sure they are only dealing with PLP lenders. 

Prior to the deal closing the buyer will have to increase his capital position in the project, this is know as his final capital injection, and it must be in escrow before any lender loans will fund.  Lenders are very much aware that borrowers are using money from their equity lines of credit to maximize their yield and have little or no-down-payment, so my advice is if your client is using their equity line of credit, have the money sitting in the account before the loan process even begins.

Capital Equity Requirements.

For 7A loans, those loans without real estate, most lenders want to see at least 15% – 20% of the buyers monies into the project, with the lender covering the balance, and a small seller carry back. If the buyer does not have the requisite 15% – 20%, a larger seller carry back can be used to offset this mitigating factor. But under no circumstance can a borrower have less than 10% down.

For 504 Loans, those loans with Real estate, 10% of the Real Estate portion is usually sufficient. But for the non-real estate component;  i.e. the business opportunity, the above down payment would be required.

Terms & Rates for the loans

SBA 7A will be at prime +1.25 – 2.75%, depending on the strength of the transaction, 7 – 10 years, adjusting quarterly, with no floor or cap.

SBA 504 will be at a negotiated fixed rate for up to twenty five years with the norm being twenty years. The CDC or bond debenture will not be determined until after the bond is sold which can be at least two to three months from the initial closing.