Commercial Loans and Fun Blog

I know a commercial loan broker that specializes in placing SBA-guaranteed commercial loans.  He has done some pretty surprising loans using this SBA guarantee.

Commercial Loans Without Real Estate:

This commercial mortgage company recently blasted out a tombstone announcing the closing of a $2.4 million SBA-guaranteed commercial loan to purchase a sushi and hibachi restaurant business in Florida.  The exciting part of this news is that there was no real estate involved.

The business was 34-years-old and successful.  The founder was retiring, and he wanted to sell the business to his long-time managers.

Even though this was a business-only transaction, with no real estate, this lender was even willing to roll in $200,000 of working capital!  

The borrowers put down 10% or $260,000 - and they got back $200,000 in working capital.  Holy mackerel.  Arguably they had only $60,000 net out of pocket to buy the restaurant that they have been running for 30 years.

Don't you now wish, with a bad recession coming, that you had
$50,000 in loan servicing fees come in every month?

Holy mackerel.  What a deal!  The SBA lender boasted of another deal in process, a $3.4 million SBA loan to finance the purchase of a bar and restaurant in Georgia.  This was another legacy-type deal with a long-time manager buying the business from the founder.

Start-Up Franchise Loans Nationwide:

This miracle SBA lender also funds start-up franchise loans all the time.  A recent closing was special because it was a new franchise with less than 20 locations open. Lenders shy away from young franchises, but we have brought many young franchises to success.

These start-up franchise loans can sometimes be closed with only 10% down, although this is only for very strong borrowers.  A 20% downpayment is the norm; but that is 80% of all of the costs needed to open.

In this latest case, the cost to build out the space, the franchise fees, the equipment, the training, the marketing, and the working capital of $50,000 came to roughly $400,000.  The borrower put down only 20%. Interest is factored in, so that the borrower does not have to make a payment until the doors open. These loans are great, and this market has stayed very hot.

The SBA lender pointed out that "people are constantly starting businesses, buying businesses, expanding, and growing.  This market still has legs.  Yes, the risk for a recession continues to grow, and things are not all rosy.  However, business is still going on, and it will continue, even in a recession.  Even in communist China there are businesses.  Billionaires and commerce goes on."

How To Reach This Miracle SBA lender:

This miracle SBA lender is not Blackburne & Sons.  At Blackburne & Sons, we make sub-prime commercial real estate loans up to $2 million nationwide.  The loan must be secured by commercial real estate.

The special thing about Blackburne & Sons is that our loans are amortized over 30-years, and they are not due for 15 years.  Grasp that.  Fifteen-year private money loans - wow.  This sure spreads out the cost of third party reports.

A loan term of 15-years means you will never have a balloon payment coming due during a bad recession.  Want to march through hell?  Trying refinancing a balloon payment during a bad recession, especially if real estate has just plunged by 45%.

In addition, private money commercial loans from Blackburne & Sons never have a prepayment penalty.  Click here to apply for a 15-year private money commercial real estate loan from Blackburne & Sons.

But Here is How You Reach Our Miracle SBA Lender:

Cal Brian Peart at 770-908-1672.

I learned something today.  A $1.1 million commercial loan on an assisted living facility was entered into C-Loans.com this afternoon.  With a hope and a prayer, I forwarded the loan application by hand to one of our SBA lenders, even though the borrower didn't specifically ask for an SBA loan.

I reserve the right in our Terms of Use to forward deals by hand to lenders that the borrower might not have considered.  For example, maybe the borrower had never thought of an SBA loan for his assisted living facility.

Not surprisingly, my lender emailed me back several hours later.  "Sorry, but we can't do this deal."

I then wrote back to him, "Because its an assisted living facility, right?"  I figured that since the SBA won't guaranty loans on apartment buildings, the SBA wouldn't finance assisted living facilities either.

I was wrong.  The SBA will, in fact, guaranty loans on assisted living facilities!!!  Huh, I learn something new every day.

"No, he replied.  "As an SBA lender, we CAN finance assisted living facilities.  The problem in this case was that the borrower wanted the loan proceeds to make some investments (speculations), and he also wanted a line of credit.  The SBA does not guaranty lines of credit or money to be used for investment; other than in the company.

I often hear borrowers say, "I applied for an SBA loan, but I was turned down.   ABC Bank didn't like my property.  I guess I'll have to get a far-more-expensive conventional loan."

No, no, no.  SBA lenders have to retain a substantial portion of every SBA loan that they originate; and while one SBA lender might reject an otherwise qualified loan (still gotta be 51% owner-occupied, etc.), another SBA lender might happily jump on the deal.

Eeuuu.  That was random.

C-Loans.com has over 200 SBA lenders.  If you take four minutes to fill out our online application form, you can instantly submit the deal to all 200 of our SBA lenders, six at a time, until one of them says yes.

Listen to this:  I live in some rolling hills surrounding a beautiful lake.  Lots of houses on the hillsides can look down into the yards of their neighbors.  Sadly a hillside homeowner reported this week that a hawk swooped down and grabbed his neighbor's cute little Bichon puppy.  The hawk obviously killed and ate the puppy.  :-(

This has been a bad month for animals around Geist Reservoir in Indianapolis.  A pack of coyotes killed two full-grown Golden Retrievers in another neighbor's backyard.  The dogs were barely alive when the owners returned, and they had been bitten so often that they died at the vet.  [Sob]  My son, Tom, has a beautiful, one-year-old Golden Retriever.  That dog is soooo sweet and loving.  I couldn't imagine if that had been his beloved Bernie.

Indiana teems with water, and therefore it teems with lush-green trees and wildlife.  A black mink (ferocious, 2.5 pound fighters) often runs through our yard.  There were three deer in my yard tonight.  Last year, across from Tom's house, my wife and I spotted a whole family of foxes.  They are pretty animals, but Tom has chickens.  Yikes.

Are you and your spouse on NextDoor.com?  I love that site.  Whole neighborhoods can share tips and juicy gossip.  Plus NextDoor.com is 100% free.  Just like C-Loans.com and Ajox.

"I applied for an SBA loan but they turned me down."  Okaaaay, but what did the second SBA lender say?  How about the third?  Today's article is pretty long, so if you don't get to the end, please remember this important lesson:

Every SBA lender is different, and just because one SBA lender turns you down, this doesn't mean that another might not still approve your deal.  By using C-Loans.com to  apply for your SBA loan (the orange button below), you can quickly shift your SBA loan application to six more of our 218 different SBA lenders. 

A lot of commercial mortgage borrowers think that the SBA is the lender, and therefore if the SBA turns them down that they are toast.  The SBA does not make commercial loans.  It only insures a part of the loan.  The actual lender is the bank making the loan.

Example:

Bank of Wyoming makes a $900,000 new SBA loan to renovate a successful but aging truck stop on I-25.  Because the business was an existing one, rather than a start-up, the borrower was able to qualify for an SBA loan of 90% loan-to-value.  Had the business been a start-up, the maximum loan-to-value ratio would have been limited to just 70%.

Now the Small Business Administration is not going to guarantee the entire $900,000 loan.  The SBA wisely demands that the bank have some skin in the game.  The general rule is that the SBA will only guarantee between 50% and 85% of the loan made by Bank of Wyoming, depending on the SBA program (7a versus 504) used and other factors. 

For the sake of this example, let's assume that the SBA agrees to guarantee 70% of the $900,000 truck stop loan made by Bank of Wyoming.  This means that Bank of Wyoming has 30% of $900,000 at risk in this loan or $270,000.  Requiring the bank to have some skin in the game helps to makes sure that banks don't make SBA loans willy-nilly.

In real life, Bank of Wyoming has less than $270,000 at risk.  The bank can sell off the insured portion for a substantial premium.  The insured portion is 70% of $900,000 or $630,000.  Now a premium is the amount that a loan buyer or a bond buyer will pay in excess of the face value of the note.

In this case, lets suppose that Bank of Wyoming can sell off in the secondary market the insured portion of this truck stop loan at a premium of 10%.  Why would bond buyer pay a 10% premium?  An SBA loan yields 2.75% over Prime.  Since Prime is 4.25% today, that's a whopping government-guaranteed yield of 7%.  Thirty-year Treasuries today are only yielding about 2.8%.

Now a 10% premium on $630,000 (the insured portion of our $900,000 loan) is a whopping $63,000!  Therefore Bank of Wyoming doesn't really have $270,000 at risk in the deal but it quickly sells off the insured portion for a $63,000 premium.  Now the bank has only $207,000 at risk in our $900,000 truck stop loan.

In doing my research for this article, I discovered that SBA lenders earn a handsome loan servicing fee of 1% per year.  Therefore the bond buyers are actually only netting 6% after loan servicing fees, but they are still quite happy to pay a 10% premium.  Heavens, I sure love-love-love loan servicing fees.  Every month my own hard money shop enjoys $90,000 in loan servicing fees, whether we close a new loan that month or not.

Okay, we are closing in on the point of today's article.  It is quite possible that the Bank of Wyoming was the third Wyoming SBA lender to look at this deal.  The first two lenders might have turned down the deal because of the fuel tanks or because the deal depended on fuel sales increasing after the renoavtion.  The deal was too speculative in the eyes of the first two banks to look at the deal.

In stark contrast, the President of Bank of Wyoming loved the deal because his dad had owned a trucking company, and his dad had complained for years that this section of I-25 desperately needed a truck stop.  

Remember, despite the large premium paid for SBA loans in the secondary market, Bank of Wyoming still had some serious skin in the game - $207,000.  Therefore the approval of any SBA loan is NOT guaranteed.  It depends on whether or not the bank reviewing the deal is willing to put a ton of their own dough at risk.

If you are trying to get your SBA loan approved, be sure to submit it through C-Loans.com to our 218 SBA lenders.  If one our SBA lenders turns you down, you'll be invited to submit the same application to six more SBA lenders, with no additional paperwork on your part!  One, short SBA loan app works for all 218 of our SBA lenders.  Start by using the orange button below.