Most business owners have a couple of impressions regarding SBA financing firmly in their minds. 1. The process to close an SBA loan takes too long and 2. You cannot refinance an existing loan with an SBA mortgage - both of which are not accurate.
The process to close an SBA loan can be long. Granted. The problem with this is that many banks that are not set up or knowledgeable about the process will attempt to “wing it". This might be hard for a lot of borrowers to believe but many banks (even large national banks) simple do not do a lot of SBA loans and take their borrower through a long and confusing process - which they know almost as well as the borrower.
Another key is to work with what's called an SBA Preferred Lender(PLP). Not only do these so-called Preferred Lenders know the process inside and out, the loan only has to be underwritten once. This is a huge point. Borrowers that work with a bank that does not hold the Preferred status will have to have their loan underwritten twice - once by the bank and THAN by the SBA. This is the biggest reason why people hear of the SBA horror stories of 3 -5 months to get there loan closed.
By working with a Preferred Lender borrowers can realistically expect their loan to close in a reasonable 45 days. I personally have closed SBA loans in less. Again - work with a bank that is an expert at SBA loans and hold the Preferred lender status.
As far as the refinance, this is very much an option for many owner occupied building owners (meaning you run your business out of the building you own). The SBA 504 does not allow refinances however the SBA 7a does.
The most common complaint about the 7a is that it's normally structured as a floating rate. However this is not always the case. For example, there are a couple of national banks that offer this as a 5 year fixed, 25 year amortization loan. The main benefits of the 7a include being able to go up to 90% loan to value (on a refinance), debt coverage ratio as low as 1.1 and credit score in the 500's (with compensating factors) are doable.
The borrower does have meet a few criteria to be eligible for the refinance, but a surprising amount of borrowers fit. The borrower only needs one of the following: Current loan is set up with a balloon (it doesn't matter when the loan balloons), current rate needs to be deemed as “unreasonable. " A good rule of thumb on this is being able to reduce ones rate by 2% or does the proposed refinance reduce their monthly payment by 20% or more? Keep in mind that this loan is amortized over 25 years, so simply by increasing the amortization from say 15 or 20 years to 25 years allows most borrowers to fit within the 20% payment reduction requirement.
We see a lot of people, especially those that were in private money loans be outstanding candidates for the SBA 7a Loans . First of all their rate is normally excessive, they have a ballooning loan and their credit has been injured.
The SBA program is not perfect, but it can be an outstanding option especially now as so many banks have pulled themselves out of the market due to the credit crisis. Our advice is don't just brush off the SBA as a non option - it very much is.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He specializes in Commercial Real Estate Loans between $400,000 - $5,000,000. Offers unique loan programs such as Commercial Second Mortgages, Commercial 30 Year Fixed and 90% non SBA financing, Commercial Equity Lines. 248 885-8797 or at commercial real estate loans