Las Vegas Loans SBA Commercial Real Estate

Facts and Myths About SBA Loans

Borrowers frequently have misconceptions about using government programs to help their businesses. The myths and facts reflect the real story about SBA lending. The SBA guarantee program is probably one of the best-kept secrets in business financing today. Long perceived as a Federal bureaucracy catering to the economically disadvantaged, the SBA actually enables many successful small businesses to borrow on more favorable terms than they could obtain on their own merits. Household names, such as Apple Computer, Federal Express and Nike, were started using SBA loan programs.

Myths About SBA
Guarantees loans that are high risk or otherwise unbankable
Loans have large prepayment penalties
Lends primarily to minorities and other economically disadvantaged groups
Takes everything the borrower owns as collateral
Process is paper-intensive
Takes 6 months to get a loan approved
Government runs the business
A lender of last resort

Facts About SBA
Guarantees loans using essentially the same credit criteria banks use
Guarantees loans on terms that might not be available through a conventional lender
Loans have been approved in 5 business days of submission (on complete packages)
Loans can be funded within 30-45 days
No job creation requirements
Long term, fully amortizing-25 years on real estate
No prepayment penalties
May be assumable

Purposes and Uses for SBA Loans
SBA loans are commonly used for:
Purchase or refinance of owner-occupied real estate
Purchase of existing business or franchise
Construction of new business facilities
Construction expansion of existing facilities
Purchase of equipment and inventory
Frequently Asked Qeuestions about SBA Loans-Part 1

Why Finance Real Estate with SBA Loans?
How Long Does It Take?
What is the Loan to Value Ratio?
Why Finance Real Estate with SBA Loans?

Most traditional sources of real estate financing such as Banks, Savings & Loans, Insurance Companies and Pension Funds, have become difficult to work with for buyers, brokers and developers. Their terms have tightened and their conditions are even tighter. With the phenomenon of the five year call provision on many real estate loans, the owner will be confronted with the issue of renewal with the lender at the terms and conditions the lender chooses, if the lender chooses to renew the loan at all. At renewal usually another full appraisal is required and that cost and other loan origination costs are once again paid.

The SBA Loans for real estate are usually for 25 years and fully amortizing. There are no prepayment penalties and the loans may be assumable.

Particularly on smaller loans-under $500,000, there are very few high loan to value and longer term loans available.
How Long Does It Take?

Being a "Preferred Lender" most of our loans up to $1,350,000 can be approved and funded within 45 days. Loans over $1,350,000 do take longer. We can Prequalify borrowers to even further expedite purchases.

Most Banks and Savings & Loans take at least that long and insurance companies and pension funds can take months to approve and fund loans.

In most cases where delays occur, it is due to the borrower's inability to provide us, on a timely basis, his basic financial and legal information. As a matter of fact, on some transactions for purchase of property, we were ready to fund the loan before escrow and the seller were ready.
What is the Loan to Value Ratio?

The minimum requirement for down payment on a real estate purchase is 10% of the total purchase price on multi-purpose type properties, therefore a loan may be up to 90%. On auto repair facilities the maximum loan is 85%. On limited purpose buildings like restaurants the maximum is 80-85% and n single purpose properties like gas stations, hotels and motels and nurserys the loan to value is a maximum of 75%. On franchises there are special programs up to 90%. If the borrower has at least two years experience in the operations of such a business we may allow the borrower to have as little as 15% cash and the owner to carry the difference.
SBA Loans-Part 2

Can SBA Financing be Used to Purchase Land?
Can SBA Financing be Used for Construction?
Can A Borrower be Prequalified Prior to Finding a Property?
Can SBA Financing be Used to Purchase Land?

Yes, assuming the property will be used for business purposes, now or in the near future.
Can SBA Financing be Used for Construction?

Yes, as long as the business will occupy at least 67% of the total building size. This construction loan will convert to a permanent 25 year, fully amortized loan at the end of construction

Example: This business owner had been in business for 15 years, with increasing sales and profit. His lease at his current address was about to expire and the landlord was informing him about his upcoming rent increase.

The owner had located a piece of land and arranged to have a building constructed. The land cost $245,000 including soft costs and interest reserve until the building was complete and the building cost with contingencies and interest reserve would be another $465,000 for a total costs of $700,000. We made a land loan of $200,000 and a construction loan of $425,000 both of which were 25 year fully amortizing loans.

His lease payments on the rented building almost equaled his loan payment and he had more space. Since the owner of the business built the building in his personal name, leasing it back to the business with lease payments equal to the loan payments, the owner can depreciate the cost of the building on his personal tax returns and will further participate in the appreciation of his building's value. If he had wanted to build a larger building to allow for even further expansion, he could have done so and initially leased out one third of the building.

Can A Borrower be Prequalified Prior to Finding a Property?

Yes! Since most of the approval process has to do with the borrower and the borrower's credit, business history, tax returns, etc., we can get an approval based on a projected purchase price or construction price so that once a property is located an appraisal can be quickly ordered and final approval and funding can be expedited.

SBA Loans-Part 3

Who Can Qualify for a SBA Loan?
What is Considered a Small Business?
What Kind of Property Can I Purchase or Construct?
What Can the Funds From a Loan be Used for, and for How Long?

Who Can Qualify for a SBA Loan?

A business must be independently owned and operated for profit. It must not be dominant in its field, and must meet certain criteria in terms of size, number of employees, and its annual sales. Loans cannot be made to speculative businesses, media businesses, or businesses where more than 30% of the gross revenues come from gambling.

What is Considered a Small Business?

Over 90% of the nation's companies are classified as "small" by the SBA size standards, with limitations on dollar volume and number of employees set according to industry. Almost every type of business qualifies for a SBA Guaranteed Loan.

For example:

Manufacturing: Maximum number of employees may range from 250 to 1,500 depending on which industry the business is primarily engaged in. Wholesale: Annual sales must not exceed $1.5 to $22 million depending on industry. Services: Annual sales must not exceed $2 to $8 million depending on industry Retailing: Annual sales must not exceed $2 to $7.5 million depending on industry

What Kind of Property Can I Purchase?

You can purchase any kind of property as long as it is for business use. It can be commercial, industrial, medical, dental retail shop, office condominium, single purpose (such as a gas station, car wash, motel, restaurant, etc.). However, the business has to occupy 51% of the property if purchased and 67% of the property if constructed.

What Can the Funds From a Loan be Used for, and for How Long?

Whether you are already in business, starting up, expanding or purchasing a business, you can use the funds for the following purposes: To purchase real estate and make improvements, build a new facility or expand an existing facility-This loan will have an amortization period of 25 Years. To purchase equipment or business assets-terms of 10 years fully amortized. To purchase inventory or provide working capital-terms of 7 years fully amortized.

If you have further questions or would like to have a specific SBA Loan Scenario on a particular property or situation, call 800-641-4722 or Email: June G. Cravenn

Email to: lvib@earthlink.net

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Created On: May 15, 2001 and updated quarterly.