The Pro’s and Con’s of the SBA 7a Loan
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- Опубликовано: 25 июл 2022
- Too often banks will lure you into the SBA 7a program flaunting its benefits, but hiding its weaknesses until the very last minute leaving the entrepreneur feeling “some type of way.” SBA Ray believes in the opposite. In this video, I share all the pro’s and con’s of the SBA 7a loan program, starting with what I consider to be the 2 least attractive aspects of the program. I’m here to arm you with the facts - the good, the bad, and the ugly - and while the SBA 7a loan is a wildly popular program, it’s not for everyone. After watching this video, you should know one way or the other if the SBA 7a loan is the right financing product for your business.
#sba #loan #lending #smallbusiness
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Thank you for the great summary Ray!
Loved the pros and cons
Thank you for this Ray! Very educational ✅
Super valuable SBA info. Clearly and concisely delivered. I will be referencing this video often!
@Mildrethbook That's great! I'm stoked for you!
Great video thank you!
Great freakin video! Thanks so much!
Very helpful and informative video. Thank you
Great video. Thank you
EXCELLENT video. Very transparent and informative.
Great info, thanks! Definitely won't be using SBA for my startup capital. For a brand new business, you shouldn't be attaching things to personal property. There's too much risk with a new firm. In short, if it breaks the separation between you and your business it's a non-starter.
Great video!
This is a great video. I’ll like to add a CON. The loan has to reamortized when the interest changes in Feb. With the recent Fed increases making these loan’s interest at 10-11%. A lot of the principal doesn’t get amortize. So the payment increases dramatical when it gets reamort, because the loan has to fully amortize by the end of the loan term.
thanks
Not unless you refi elsewhere with lower rate.
Amortizing of a loan is a con compared to balloon..makes the cost of capital increase dramatically
With the two cons at the beginning, I am out.
Great video and content!
For a business acquisition - can you use funds from an equipment loan to serve as your 5%/10% injection in conjunction with the 7A?
Essentially acquiring a business with none of your cash.
Generally, no. An exception would be if you already own a company in the same exact industry with significant equity built up. Then you could be eligible to expand at 100% financing through acquisition.
Thanks
Very quick and to the point video! What happens if you don't have enough equity on your home for the amount you're asking? I have been in business for over 20 yrs in the construction industry and business is doing great considering the high cost of everything! In a way I guess it's because I am in the right market and people will always be in need of a new roof, windows, siding, etc. I want to be able to buy some land and build a shop to store massive amounts of materials as the savings from buying in bulk are huge! I also developed technology that has helped my business tremendously and would like to get it to the spot where it can actually generate money. (would I be able to use those funds for that as well?)
If your house has less than 25% equity, the SBA will not require you to pledge it as collateral.
I would highly recommend buying an existing building vs ground up construction but either way, you can include financing for your expansion into the 7a loan
I have a few small multi family properties, looking to acquire a 20 unit. How can I get in touch with you ?
I live in Texas 🤘🏾
Is there any type of drawback or con to leasing office space vs buying a building/office in terms of applying for the SBA 7a?
The draw back would be that you are paying a landlord vs building equity in an appreciating asset
Thanks for sharing! Forgive the naive question, but is 10% equity down for small business buy-out a 7A standard or could the requirement be more like 40% down depending on the business/borrower? Leveraging 90% of acquisition price seems super aggressive haha.
90% leverage is pretty normal. Thanks to the 10 year amortizations of the loan and the low multiples of business valuations in this end of the market ($1-6mm,) the debt service coverage is often very strong (1.50x+) in most of the transactions I finance.
@@SBA_Ray Understood- thank you very much! I always imagined that the low multiples were largely the product of smaller businesses being less stable than larger ones but it sounds like that is not necessarily the case.... enabling higher leverage ratios.
Can you use seller financing in conjunction with an SBA 7A loan? Business price of $3M, $5M annual revenue, $500k+ cash flow, hard assets of +$1M+.
Ya sure can
Hey Ray, love the videos so far they are very insightful. I’m looking to acquire an already profitable business that has been operating for 9 years. Purchase price is $770,000 and my issue is i do not have the total amount required for a 10% down payment per SBA7a requirements.
With a credit score of 750 and being the owner of a business already that i can self sustain financially, do you think my odd’s of applying for a loan from a bank for the down payment and getting approved are good? Thanks!
Here’s where it makes sense: you own real estate with equity, and are going to borrow against that equity for the business acquisition loan AND you have an outside source of repayment for that debt (outside of the business you are seeking to purchase)
@@SBA_Ray My business had no real estate it is a clothing re-selling business which is all done through E-Commerce and i work out of a rented storage unit and my garage.
@@Tedjones389 I meant like a house
@@SBA_Ray We rent our apartment 😅 i’m 26 with no physical assets
I am a barber looking to open a barbershop. What would I more than likely have to do to get approved for a SBA loan and what would be the best kind to apply for or look into
You’d be looking at an SBA express loan. Probably from a big bank like TD Bank of America or Chase. These are largely based on personal credit.
I have a trucking company that generates around 8 million gross per year and I am looking to add more units to my fleet. I have several lenders approved for the loans for the units but was wondering if a SBA 7a loan would be a better option. The lenders I have ask for 10% , price per unit is $195k I have 5 units looking to purchase.
Possibly. I would just choose based on terms. SBA loans are going to finance up to 100% at 10-11% (variable rate) over 10 years.
Well honestly i'd say a 7(a) is a better option, you could get help from an LO one got me funded some months back. here's his handle.
i think his handle is🤔 'loan agent jude'
on insta👍
Do you need to have experience in a particular industry? Additionally, although you can put 10% down how much is that likely for most cases? How much cash reserves do you still need on the sideline?
Typically not always direct industry, but it depends on the industry, and transferable experience is required. Typically that comes in the form of management experience, budgetary, inventory management, business ownership, etc.
10% injection is very common.
When it comes to post close liquidity, the more the better. One rule of thumb is 4-6 months worth of SBA loan payments.
@@SBA_Ray Thanks for such an informed answer. I'm in public service; think teachers,fire fighters, police... Just curious how often they get loans of this type for and if they are approved. However, I do have a major in finance, along with a level of the CFA.
@@gaving9463 not a TON but I’ve done childcare acquisitions for teachers and franchise restaurant deals for police/firefighters.
I need some advice on a startup. I'm looking to purchase a commercial service truck around 80k. I have 30k to put down with a high credit score the SBA said I would need a business proposal for the 7A . I've never wrote a business proposal is there anywhere to start looking for a good template.
A lawyer is the best bet. You could look at auction websites for a service truck. Also look into promissory notes.
Do you sit down and help individuals discuss options or possibilities for 7a loans
Yes. You can submit an inquiry here: www.sbaray.com/loan
Good information, thanks for that. I am running a used car dealership from almost a year now. It's profitable and would like to get a SBA 7a to buy commercial real estate. Do you think I would need cash injection or any downpayment requirement? 800 + score , not a home owner but have good personal cash in bank.
Possibly. It would depend on how much equity you’ve built in your business. If you send us an inquiry on www.sbaray.com we’d be happy to assist your further.
A down payment maybe, well i got help getting my 7(a) from an LO. Here's his handle.
i think it's 🤔loan agent jude.
on insta👍
for con #2 does that still apply when the rate goes down?
@@FlyyrPopulation if rates go up, your rate will go up. If rates go down, your rate will go down. This isn’t as much of a con these days given where rates are.
Let’s say I already started a business but not officially registered and I want to make it official and buy commercial real estate to make it legit would I be able to get SBA or do I need to turn it into an official LLC first ?
I would make it official for starters. Right now you’re going to be viewed as a start up, and start ups are much more difficult to finance. Having a solid year or 2 of tax returns under your belt will be a game changer and open the door to way more financing options (assuming you’re profitable)
If we are in Texas and looking to buy several Franchises? Would 7a be an option?
Yes!
Sure it will be, if you need personal help to process your 7a then try talking to an LO, one helped me early june.
i think🤔his handle is 'loan agent jude'.
On insta👍
Great video! Super informative!
I’m looking into purchasing an established exterior pressure washing small business (since 2012) for around 100k. Low to mid 700 credit score but it’s my first small business loan. I don’t have “professional experience” in this field but I have worked with and around pressure washers since I was a kid. Driveways, sidewalks, house siding, getters, all of which are what this company does. Also, I have years of mechanical experience for working on the equipment I’d purchase with the deal. I don’t own my home for collateral, but I have a truck valued more than 25% of the purchase price. What all would be expected/needed of me to be approved?
Note: this is near Atl, Ga in the USA
Thank you for all the information!
Hello there. Do you have $10k cash in the bank to inject? You’ll need to work with a lender that works on small loans. Try United Midwest savings bank.
@@SBA_Ray Yes I can do that if they needed it. Or it is it required? But either way it should be fine. Okay awesome I win check them out, thank you!
@@kayleeredditt1644 yea they will require injection
@@SBA_RayJust curious-since October, the SBA would no longer require that injection for start ups, right? It’s just for acquisitions now?
@@alexandrac6177 the SBA allows the lender to determine the equity injection for start ups
Would like to speak with regarding an investment and start up
Get in touch at www.SBARay.com
@sba_ray If I am trying to buy a self storage unit using a single member LLC, and the LLC has the 10% - 20% down payment money in a business bank account but the LLC does not have any other assets for collateral, would I still be required to provide personal tax returns and use personal assets (personal home or money in personal savings) for collateral?
Yes, personal guarantee would be required, personal taxes provided, and if the business assets don’t fully secure the loan, other real estate may have to be pledged (if available)
I am looking to buy land and build an assisted living facility (ALF) in NJ. I estimate the total cost to build out the property and equip it for business to be approximately $1.2m. The land and building with the business would be valued at $2m once it is fully operational. The ALF would be a startup. I own a rental property with approximately $500k of equity ($850k FMV), and I have about $250k equity in my home ($550k fmv). Credit score in low 700's..How much cash would I need to get a 7a loan? And how much of the equity would I need to pledge and are you licensed in NJ?
Minimum of 10% of the total project cost. You would need to pledge enough collateral to fully secure the loan or until all additional collateral has been pledged - whichever comes first. I work for a national SBA lender who is licensed by SBA to make 7a loans in all 50 states.
My question is:
Do you have experience running an ALF?
What is the licensing criteria?
@SBA Ray thanks for the reply..I do not have any experience running an ALF. Surprisingly, outside of the property passing inspection requirements for safety (fire sprinkler, trip hazards, minimum sq ftg, etc) the licensing requirements are pretty simple. 30 hour course and a small fee gets you licensed as an administrator. Because I don't have experience, I would hire an experienced administrator to run the facility. I am a CPA and I run my own CPA firm. Not sure if having financial knowledge and experience as an entrepreneur would help or be irrelevant. Does not having experience stop me from getting this type of loan?
@@eddiemartinez9492 for this type of business, I do require direct industry experience. I would be able to assist if the person with experience was an equity partner
Looking at expanding into new premises and don’t want to hurt cash flow with a down payment .
Are we a good candidate for Sba7a loans?
We have revenues of roughly $1.4mm annually in operation for 11 years
Have a warehouse and land valued at around 500k we could drop as collateral
Looking for around $750k which would cover the building purchase and around $100k renovations
Only negative is a medium/fair Fico 640 due to some issues about 6 years ago
Let me know if we are someone you can work with
Possibly. Email me at rdrew@fundexsolutions.com and we can take a look under the hood
If I went through you what would I need to get a small business loan
Check out www.sbaray.com for further information
Hi Ray, we are in market of getting financing for a start up business but we don’t know how to start with the SBA any advice?
I would recommend contacting your local Small Business Development Center SBDC)
Well i'd say you just contact an LO for help, one helped me get my 7a late june. here's his handle.
i think🤔 it's 'loan agent jude'.
On lnstagam.
Are there Any particular companies thst specialize in these loans?
Yes, there are hundreds. I work for one.
Can I use a 7a to buy Foreign property for my business?
Gotta be located in the U.S.
so, what if I have no personal collateral
You can’t pledge what ya don’t got
If you don’t own a house what do you use as collateral?
The collateral would just be the business assets in that scenario.
@@SBA_Ray thank you so much 🙏
What if you don’t have any collateral, like a car or house?
You can’t pledge what you don’t own
@@SBA_RaySo per a financial advisor stated to me “For an SBA 7(a) loan, while collateral is typically required for loans over $350,000, it is not the sole determinant of loan approval. If you lack traditional collateral like real estate, lenders will consider the overall creditworthiness, cash flow, and historical performance of the business you intend to purchase.” I could be wrong but for large transaction deals the seller will provide seller financing on a portion of the purchase for people that don’t have cash on hand for 500,000 or more.
I am interested in getting a 7 a loan but I don’t have a house but the business I am looking to bye has over 300.000 dollars in tools and it generates annually 250,000 to 300,000 a year can I still apply for the long?
Yes - owning a house is not an SBA requirement.
Is there any way you can show me what I need to do so I can get approved for this loan so I can purchase the business?
@@alfam8230 what’s the purchase price?
@@SBA_Ray its 400,000 it’s a car repair shop and I will be adding a truck repair so I will need some more capital to buy inventory truck tires oil filters airbags etc.
@@alfam8230 email me which State the business is, and I will point you in the right direction. My email is rdrew@fundexsolutions.com.
I woak up checked my credit score. And thought. It's 706 and I could definitely get a sba7a to buy an already established rv park. Rite?
Yeah! …if you have 10% to put down, and have the right type of experience to operate this business.
@@SBA_Ray I have hotel experience, 15+years in customer service, and a bachelor's in product design which can transfer over to land, and interior design. I have many big plans for my park .
@@aricaa8291 I think that is great. If you need any assistance with the equity injection check out www.theSBAfund.com
Do you think I will get approved for a 50k business loan? I have a new LLC, new Ein, but personal credit is a 750, 4k income a month
No idea, you’d have to apply with an express lender.
@@SBA_Ray can you name a couple
@@Reagan-yb9de United Midwest savings bank, Bayfirst, tandem bank, chase, td bank
@@SBA_Ray okay, will those banks approve loans for new businesses though
@@Reagan-yb9de I don’t really get involved in SBA express loans, so I’m not sure.
Hey Ray im a truck driver and need a loan to buy a truck. Been in business for 1.5 years and excellent credit. Can 7a be for me?
How much is a truck?
@@SBA_Ray it ranges. But I'm looking to buy a $70k truck so I would ask for $80k to cover taxes and fees.
@@ponce-87 I would say, probably no because of the amount, unless you can get an SBA express loan from one of the big banks. The SBA lenders I am familiar with have programs for $150k loans, $150-350k, and $350k+
@@SBA_Ray damn, ok thanks.
'loanagentjude'
Greetings, very informative. I am a small business owner and looking to purchase a vehicle (work truck) for my business. The vehicle is worth about 100,000 I have 60,000 for down payment and want to finance the remaining 40,000 is a SBA 7A loan a good thing for me??? Thank you.
I would just get a regular truck loan for that if you can
You keep saying BUY a building. Does that mean only an existing building or can it also be new construction?
@@dammitbobby283 ground up construction is eligible but you have to occupy at least 60% right away, and at least 80% by year 10.
@@SBA_Ray Can the building be mixed-use, for example, a laundromat on the first floor and an apartment upstairs for the owner even If the owner has to pay rent to the business? Some self-storage offers the manager an apartment on the same property.
@@dammitbobby283 yes as long as the business occupies 51%+
@@SBA_Ray Awesome, thanks.
How long does it take to get funded on 7a loan?
For what type of project?
@@SBA_Ray acquisition of Small Franchise deli.
@@agenty4822 I would venture to guess that it will take you 60-90 days
Do the banks ever take over someone's home or their assets? I can't find anything on RUclips here that talks about failed businesses and owners losing their home, etc.
When you pledge your business assets or personal real estate as collateral, you run the risk of the bank trying to take back and liquidate those assets in the event of a default
@@SBA_Ray So in other words the borrower should be ok with their current home being their forever home?
What if you don’t have Real Estate?
Nothing. You can’t pledge what you don’t own.
Simple. I just messaged your website btw. I’m looking to purchase industrial equipment to expand our volume. Hopefully I hear from you soon. Thanks for the content!
Is there a way around getting a lien on my home?
If the loan is not fully secured by the business collateral, then the SBA will require you the pledge “all available collateral”. This would include any personally owned real estate with 25%+ equity.
So if u have no assets ur just screwed…
Is there an SBA loan that doesn’t require me putting my house as collateral?
SBA does not have the requirement on loans $500k and under
Is there a good email to reach out to you?
My wife and I have been buying land over the past few years and want to start building single family homes and duplexes on some of the land we own. Would the 7A be an option? @sba_ray
Real estate development for sale or for rent is not eligible for SBA
@@SBA_Ray we want to do both.
Thanks