Help with SBA 7(a) Process

[Evan Scott]

Hello everybody,

This forum has been incredibly helpful lately. I was looking to get some more information/help from people experienced with the SBA 7(a) loan process.

My business partner and I recently formed an LLC in the state of Illinois and we are looking for a loan to purchase commercial real estate that will be used as our HQ (which is what 7(a) loans are intended for).

What is confusing to us at the moment is how collateral and LTV are looked at in this picture. The property we are looking at will require significant rehab, which is allowed for within the 7(a) loan terms. The total cost of the purchase and rehab will be around 1.4-1.6mm (based on numerous estimates). With these numbers, is the loan not to exceed 90% of this amount, for example (ie 90% LTV), or are we supposed to somehow prove that we have at least 10% of that amount in cash/liquid assets on hand (say $160k).

Both myself and my business partner have enough cash on hand to cover 10% of the loan, but if possible, we do not wish to have to put this into an escrow or transfer the cash for various tax reasons. The vague wording is confusing as to whether we need to put up this 10% into some account in advance or whether this is simply a number thrown around. It would not make much sense to have to post this amount, only to receive a much larger amount of cash immediately after.

I hope my wording here wasn't too confusing and I could get some help with the topic. Small business financing, at the moment, is not my area of expertise so any help is greatly appreciated.