United Bank & Trust Blog

Kenny Leonard

We had a great Let’sTalk Webinar this week discussing Small Business Lending in Today’s Economy. Our participants had a lot of great questions and we thought it would be great to publish those for everyone to see.

1. Can the SBA loans be used to refinance existing debt? Yes, you can refinance existing debt with the 7a loan. There is certain criterion that must be met, however.
2. Aren’t there maximum annual revenues allowed by the SBA? Yes there are maximum revenue limits but it is industry specific not a standard across the board. There are also other personal and business financial ratio tests that must be conducted. And just because you exceed one of them doesn’t mean we can’t do the loan. Contact a USFC representative for more details
3. Are there prepayment penalties for early termination? There are prepayment penalties on the 25yr 7a loan of 5%, 3%, and 1% for the first 3 years respectively and for the first ten years on the 504 loan declining from 10%-1% reducing 1% each year.
4. In talking about the 504 loan, is the information pertinent only to small businesses holding real estate? No, 504 loans can also be used for the purchase and partial refinance of existing debt that was used to acquire fixed assets such as machinery and equipment (no rolling stock, however, such as trucks etc.)
5. How to choose correct loan for my customer? Business buyer purchasing property and business and will need remodel capital and start-up funds. Turn to the experts at USFC. That is what we are here for. We find innovative solutions for various small business transactions and one of our loan officers would be happy to walk through potential structures and find the best opportunity for the customer
6. Do you handle the small SBA loans just for business cash flow no real estate? We do finance loans used for things not related to real estate such as lines of credit, equipment and permanent working capital. We would have to look at having sufficient collateral to support our loan. If there isn’t any additional personal or business collateral we would heavily rely on the business financials and the historical performance. Often times, however, we are able to look at a company’s existing debt structure and refinance all of it resulting in considerable monthly payment savings for the customer.
7. Are self storage properties able to be SBA 504 or 7a loans? Generally the SBA doesn’t allow self storage units to be eligible. There is a requirement that the real estate must be 51% owner occupied and no more than 49% can be rented out. That being said, however, if the business has a retail store on the property that rents moving trucks, sells boxes and other moving supplies etc. and the revenues from that operation are greater than the revenues generated from the rental of the self storage units it is possible that the project may become eligible.
8. When a local source of loan funding offers to become a part of a business loan project, how is that seen w/in an SBA 7(a) or 504 lending project? We like it and so does the SBA! I am assuming this is referring to Downtown Development Authority dollars or other grants or loans from municipalities. These can be complicated to get done if you don’t have experience doing it so rely on us to help you through the process we have the experience and expertise!
9. Is the new SBA Sr. Area Mgr assigned to the Grand Rapids Office aware of the “Interim Loan” program offered through United? That is a great question. I don’t know if they are or not but we will reach out to them. I am only aware of a few financial institutions in the country that offer this program. It is very risky from the financial institution’s perspective and very complicated to pull off. Because of our incredible team, expertise and experience we have successfully done several of these and look forward to doing more.
10. Are you able to pre-approve a small business for a certain selling price before a potential buyer is secured? Unfortunately no. The reason is because the potential buyer is really what we make our loan decision on. Obviously the business they are buying is of interest to us too, but the individual is crucial. What could be done, however, is a business valuation ahead of time that can determine what the “going concern” value of the business is. Unfortunately, however, this would cost money to have done.
11. With the proposed increases in the SBA loan amounts what will happen to the industry specific size criteria? For instance Restaurants can’t be over 6MM in annual revenues. There are also net worth limitations too. So far I haven’t seen anything that would allow for an increase in the “size standards.” That being said please keep in mind that just because a business exceeds one of the size standards doesn’t automatically make them ineligible. With our expertise we are able to successfully propose to the SBA accepting alternative size standards in certain cases.
12. What is the minimum credit scores needed for SBA 7a? Are there ever exceptions? As we mentioned credit scores are important in dealing with the history of good decision making and financial management. That being said if there is a good reason for the credit scores that can be proven via documentation it doesn’t disqualify the borrower. It is still required; however, that there aren’t any outstanding judgments and that there hasn’t been any late payments on government obligations such as taxes and student loans.
13. Follow up on prepayment penalty is business outgrows existing property and needs more space. Can the loans be transferred to the new purchase to eliminate the prepayment penalty? This is an interesting situation. Depending on the specifics I could potentially see a scenario where there could be a second loan done in a subordinated position with a transfer of collateral (i.e. real estate). That being said we would have to look at the entire big picture and get the SBA’s approval.
14. Does United Structured Finance do business valuations? We do not. In an effort to keep free of any conflicts of interest we outsource business valuations this is also true for appraisals and environmental due diligence. We do have a program that allows us to do much cheaper business valuations for smaller loan amounts (typically less than $500,000).

Take some time to review the event recording or the PowerPoint presentation (PDF). All of these materials and a complete transcript of the Q&A session are now available for download on our website.