Can you fund your own syndication with SBA loan?

Question

Hello BP Family,

I am looking to purchase a warehouse North of Houston, TX. The purchase price is 1.6M and seller if offering 5% IR at 25% LTV and 30 year amortization. The property looks good and sits at 8 cap at the moment. I have some funds committed from investors but I am wondering if I can get a SBA loan to put in capital into my own deal? Has anyone done this? Thank you!

Ronald Rohde · Answer

$120k equity? that should 1-2 people max. Otherwise there isn't enough juice to manage it. K1s, investor questions, dilution, or complex carry.

What does the building look like?

Russ Kitzberger · Answer

Usually SBA requires owner occupancy, provides little to no benefit for rental income, and the reason to use it is low equity injection requirements.

As far as a separate loan; I haven't been SBA deals allow for investment in rental real estate, only for real estate used for the small business the loan is for.

Best to ask your SBA rep.

Henry Clark · Answer

SBA background:

1.  They require at least 51% owner occupied.  But they really don't like that high of 3rd party rentals at 49%.

2.  Your SBA loan processing will probably take about 6 months.  Has gotten faster since covid payroll processing has ceased.  This is not a nimble way to buy a property.

3.  You will probably want to do a Construction Loan with a local bank who does SBA loans.  Try to do Interest only during the "Construction" period and the Rent up period.  Either so many months, say 12 up to 18 months, or to a certain occupancy rate.  Then convert to an SBA loan.  Danger, Danger.  If the SBA loan is not approved and you were planning on a 10% down and then you may have to come up with 25% down.

4.  Normal loan split is you 10%; local bank 45%; SBA 45%.  Can be slightly different.  So, if your deal is $1.6mm then you need $160k at 10%.  At your Seller financing of 25% that would be $400k.  Actually, your seller finance looks pretty good.  5% versus what the SBA would probably give you at this moment isn't too far apart.  Call your banker for SBA rates as of today.  30-year amortization is longer than you will get with SBA 20 to 25 years.  Seller financing do they have a Balloon payment or refinancing at 5 years?  If not, that is great, locked in at 5%.  You can always do an SBA refi loan later at your leisure if your qualify.

5.  If you have an LLC you might be able to do the loan together.  But the SBA won't want other people on the loan unless some form of partnership.

6.  You will need 3 years of tax records.  Personal financial statements for 3 years. etc etc.

7.  Helped my brother do a build in Texas.  Banks weren't easy to work with.  They didn't want to do construction loans, wanted a 40% down, said 20% SBA.  Basically didn't want our business.  Later he sold his business and had lots of cash, then they loved him.  All I can think of is Texas has been thru Oil Boom and Bust and has tighter bank restrictions.

If you can come up with the $400k as down payment, that is probably the better way to go than the SBA loan. Not giving financial advice.

Contact my cousin Jin Sook Ahn in Houston, she does primarily Commercial and say hello for me.  Tell her you're financing and what type of deals your looking for.  If you do find a deal without her, recommend you use her as your Buyers Agent.  So, before you contact a Listing Agent, always go through your Buyer Agent.  They represent you not the seller.

Cap Rates:  Forget Cap rates.  Build your own P/L and cash flow models don't trust what is shown. Along with Capex.  Also, you won't be offering List price.

Cason Acor · Answer

You said the property is an 8 cap at the asking price, so I'm assuming this is strictly an investment property, correct? As far as I'm aware, for investments purposes, you can only get an SBA loan to purchase hospitality and self storage assets. You can't use an SBA loan to purchase a fully occupied industrial investment.

Unless you plan on occupying a portion of the building you're buying, then you have to occupy at least 51% of the square footage in order to use an SBA loan.

Can you fund your own syndication with SBA loan?

Most Popular Reply