• Colin Dubel

Owner-User SBA Loans for Commercial Business Properties

WHAT LOAN PROGRAMS ARE AVAILABLE FOR OWNER-USERS? Owner-occupied commercial real estate loans can fall into a few different buckets depending on both qualification and client strategy. Qualification factors include available down payment, operating company financials, historical performance, industry type, loan amount and personal credit among other factors. Client strategy factors to consider may include allocated down payment, short- or long-term holding period, buildout requirements and available banking relationship.

There are a few core programs that will likely be explored for owner-user clients. Each program has their own advantages and drawbacks (assuming the client qualifies for all of them). HARBORWEST can determine for you which programs you are qualified for, and make a recommendation based on your individual situation. A summary of each program is available on the next page.

o Conventional Program (typically 25%+ down, with no SBA involvement) o SBA 504 Program (typically 10-15% down with SBA, real estate only) o SBA 7(A) Program (typically 10-15% down with SBA, real estate + business) o Private Lending Program (typically 25%+ down, sub-prime companies) WHAT LOAN DISCUSSION POINTS SHOULD BE CONSIDERED? HARBORWEST recommends all owner-user clients consider the following questions when evaluating which commercial loan program might be best for their situation: o What down payment amount are you willing and able to contribute? o Do you have short-term plans to sell the building or company, or change structure? o Do you currently own real estate, and would you be willing to lien that other property? o How much banking relationship are you able to contribute to a new lender? o Is there construction build out required, or is the property move-in ready now? o What is most important to you? (Lowest rate, payment stability, flexibility, service) WHAT DOCUMENTATION WILL NEED TO BE PROVIDED? Business owners should be prepared to provide documentation for both their operating company and personal financials. Each documentation request will be different and some documents not applicable, but clients can use the below as a general checklist:

o COMPANY FINANCIALS o Last 3 years’ company tax returns o Interim financials – YTD P&L report o Interim financials – current balance sheet o Current A/R report, current A/P report o Debt schedule for long-term liabilities o Company profile and questionnaire o SUPPORTING DOCUMENTS o Personal financial statement o Personal schedule of real estate o Last 3 years’ personal tax returns o Property photos and/or marketing o Purchase contract (if a purchase) o Company map & entity documentation WHAT ARE THE DIFFERENCES BETWEEN THE PRIMARY OPTIONS?

Below is a reference table comparing the SBA 504 program, SBA 7(A) program, and conventional banking programs. This should only be used for discussion purposed as there are considerable gray areas within these programs which should be discussed in detail with HARBORWEST.

**SBA loan programs are subject to eligibility which will include a review of the company’s tax status (for-profit or non-profit), access to alternative funds, annual revenue limits, company net worth limits, location of operations, number of employees, and use of funds among other qualification tests.

ADVANTAGES – SBA 504 Program

ü Larger loan limits vs. 7(A), less SBA fees vs. 7(A) since only charged on the 2nd trust deed, can include longer fixed terms and preferred prepay structures on the bank’s 1st trust deed, no additional collateral required at 90% LTV, and typically lower rates overall.


ü Much more flexible for deals with hurdles or new businesses, can include financing for the business (goodwill, inventory, equipment, etc.) in addition the real estate, 25-year fixed programs available for stronger companies, shorter 5-3-1-0% prepay penalty, can be quicker to fund vs. 504, more bank control vs. SBA 504.

ADVANTAGES – Conventional Program

ü Lowest fees among options, most flexibility in fixed rate period and prepay penalty structure, no additional SBA review or approval required, no maximum loan limit, largest rate discounts with banking relationship and deposits, less eligibility restrictions including financing for non-profits, high revenue companies, and companies with international operations.

Please contact our team at info@hwclending.com to request a complimentary analysis and loan quote on your commercial property. We look forward to hearing from you!

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