The SBA 7a loan program is a government-sponsored commercial real estate loan program that helps small businesses acquire the commercial real estate that their companies need to grow. As a result of the sub-prime crisis and the resulting credit crunch, banks across the United States have greatly reduced their commercial real estate lending. The Federal government is desperate to pump money back out into the economy. One of the vehicles that they are aggressively using is the SBA loan program.
The Small Business Administration (SBA) does not actually make small business loans. Instead, the SBA merely guarantees up to 90% of the principal of certain business loans made by banks and other specialized SBA lenders.
Under the SBA 7(a) program, an SBA lender will make a commercial real estate loan that is fully-amortized over 20 or 25 years. Right off the bat, this is a very attractive program because most commercial real estate loans have a loan term of only five to ten years.
The SBA will then guarantee up to 90% of this small business loan for the bank, and the bank will typically be able to sell the loan off in the secondary market at a handsome premium – often five to seven percent of the loan amount. A loan or a bond sells for a premium when it fetches more than the face amount of the debt, usually because the interest rate is higher than the market.
SBA 7(a) loans are written as adjustable mortgage loans tied to prime. The spreads will vary from a low of 1% over prime to a maximum of 2.75% over prime. The loan fee depends on the size of the loan and the type of collateral (equipment versus commercial real estate), but the fees usually run between 2 and 3 points.
Small business owners can borrow between $500,000 and $5 million using the SBA 7(a) program.
The really big advantage of the SBA 7(a) program is that the owners of existing small businesses can often get loans up to 90% of the purchase price in order to buy commercial real estate for their businesses. Commercial real estate loans up to 90% loan-to-value are pretty terrific today.
In order to qualify for an SBA 7(a) loan, the business owner must occupy, or intend to occupy, at least 51% of the commercial real estate being purchased. The commercial real estate cannot have a residential component. For example, if the target property consisted of an old home and a large warehouse, it probably could NOT be financed using SBA financing.
SBA 7(a) loans must be fully-collateralized. In other words, the SBA lender is likely to blanket all of the borrower’s inventory, receivables and equipment. This makes it difficult for the business to obtain a business line of credit from a bank. In addition, the SBA lender will usually blanket the personal residence of the borrower.
Borrowers can also obtain SBA 7(a) loans for working capital, to purchase equipment or to acquire businesses or franchises. The required down payments, however, are larger. Start-up borrowers will usually be required to put at least 20% down. More often they will be required to put 30% down.
Loan Program Highlights :
Loan Amounts: $500,000 – $5,000,000 (Subject to SBA Program Limits)
Interest Rate: Prime + 1% to 2.75% floating (or alternative Libor based rate)
Loan Term: 7 – 25 year amortization
Prepayment Charge: 1-14 years maturity: None 15 – 25 years maturity: SBA charges 5-3-1% and None after 3 years
Equity Requirement: 15% – 25%
Other Criteria: Citizen or legal permanent resident
Property Types: Hotels & Motels, Manufacturing Companies, Restaurants, Convenience Stores, Gas Stations, Dry Cleaners, Day Care Centers, Small Office Buildings, Office Warehouses, Bed & Breakfast, Health & Fitness Clubs, Funeral Homes, Veterinary Facilities, Assisted Living Facilities, Auto Repair Shops, Office Condos, Medical Professionals, Franchise and others…
Up to 100% Financing for Medical, Dental and Veterinary Practices
SBA loans are subject to SBA eligibility guidelines and all loan products are subject to approval. Other terms and conditions may apply.