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Questions & Answers
Does Preferred Lending Partners loan money for working capital?
No. The SBA 504 program is specifically designed to assist businesses in the purchase and funding of real estate and large capital equipment. However, you may be eligible to have a companion 7(a)/Working capital loan through another lending institution.
What is included in fixed asset acquisition?
Purchase of land. (It needs to be used as part of business operations) Purchase or construction of a building. Modernization, renovation, restoration of a building including leasehold improvements. Purchase of machinery and equipment which has a minimum useful life of 10 years.
Is It Difficult to Apply?
No. When applying for an SBA loan - as with any loan - you are asked to fill out our loan application and provide specific documentation. At Preferred Lending Partners, we provide a checklist to simplify the process. Once the application is received we will do all of the analysis, packaging, and communication with SBA. Our goal is to make the process simple and clear for the borrower and the primary lending institution. If you would like us to work directly with your CPA we are happy to do so.
How many jobs must be created to meet the SBA requirements?
At least one (1) job must be created or retained for every $65,000 of SBA 504 debenture funds issued. In labor surplus areas, e.g. Empowerment Zones, Enterprise Communities, and State designated zones; this requirement may be one job for every $75,000 in debenture funds. The job requirement may be waived if the project fits one of the Public Policy Goals.
When is a higher equity injection required?
Equity of 15-20% is required for businesses with irregular profitability, lack of historical debt service ability, a short track record or for single purpose properties. Businesses like carwashes, restaurants, and golf courses are examples of businesses requiring a higher injection.
How much can be borrowed?
Up to 90% of the total project cost or appraised value of the property, whichever is less. The SBA Maximum is $1,500,000, or $2,000,000 if the business is women- owned, minority-owned, veteran-owned, in a rural or enterprise zone, or is actively involved in exporting. Manufacturers and certain green sustainable projects may receive up to $4,000,000 from the SBA 504 program.
Do borrowers have to have a primary lender to participate in the SBA 504 program? Can Preferred refer me to a 1st lender?
Yes, a primary lender is required. Preferred’s staff would be happy to assist you by identifying qualified SBA lenders in the borrower’s area and based on the borrowers preferences.
How much of a building can be leased to other tenants?
On new construction, up to 20% of the building may be leased to another tenant permanently and up to 40% on a temporary basis. If purchasing an existing building, 51% of the space must be occupied by the applicant. The balance may be leased as long as no proceeds of the SBA 504 loan are used to remodel or convert the rental space.
What businesses are eligible?
Companies that are not eligible for SBA 504 loans are: not-for-profit businesses; businesses engaged in lending (such as banks, finance companies); passive holders of real estate and/or personal property; life insurance companies --(however an insurance agency may be eligible;) businesses located in a foreign country or owned by aliens; businesses selling through a pyramid plan; illegal businesses; businesses which restrict patronage; government owned entities (excluding Native American Tribes); businesses engaged in promoting religion; consumer and marketing cooperatives (producer cooperatives are eligible); businesses engaged in loan packaging; businesses owned by persons of poor character; equity interest by lender, Preferred or associates in applicant concern; businesses providing prurient sexual material; businesses that have previously defaulted on a Federal loan; businesses engaged in political or lobbying activities; and speculative businesses. Developers are also ineligible.
What are the prepayment guidelines and restrictions?
The bank loan generally can be prepaid according to terms negotiated between the bank and borrower. The SBA 504 loan may be prepaid, but it must be prepaid in full and there is a declining prepayment penalty during the first half of the term.
What is an SBA 7(a) Loan?
It is a loan that gives commercially secure small- to medium-sized businesses, established entrepreneurs, and professionals access to other resources for additional capital. The only difference between this type of financing and conventional financing is the government guarantee - which can be up to 75 percent of the loan amount .
How does a market funded SBA 504 loan compare to a federal government funded 7(a) loan?
Both are SBA guaranteed loans. The SBA 504 loan is a low down payment, fixed-rate, long-term loan to assist a growing business to acquire a larger facility or equipment. While the SBA 7(a) loan can also be used to finance those terms, the down payment is generally higher and the interest rate is variable and fluctuates with an interest rate index. Hence, the total cost of a SBA 7(a) loan to the borrower can be significantly higher than the cost of a SBA 504 loan. Also 7(a) loans can finance working capital and other ineligible items the 504 cannot. Therefore sometimes a 504 loan and 7(a) companion loan make the most sense based on individual borrower needs. We at Preferred Lending will help evaluate this with you.
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