All Forum Posts by: Ken Jernigan

@Zach Quick 

The loan has to be at least 2 years old and you have to have been current for the last year (TTM). Seller financing is OK, but SBA's going to want to see a proper promissory note and payment schedule. They're pretty picky about related-party debt, so I hope the seller loan is not from your uncle.

A self-storage would be eligible for up to 90% of appraised value.

SBA fees are roughly: 1) SBA guarantee fee 0.5%, 2) Funding fee: 0.25%, 3) CDC processing fee: 1.5%, Underwriter fee: 0.04% of gross debenture amount. Additionally, the third-party lender owes the SBA a 0.5% lenders fee which can be passed on the the borrower. These can all be capitalized into the loan, provided the property appraises as expected. Note these are calculated on the SBA debenture amount, generally about 35-40% of total project costs, with the exception of the lenders fee which is totaled on the third party loan. The third party lender may charge other fees, such as origination and commitment. SBA fees sometimes change, so I would want to verify current fees with a CDC.

You have to take in other closing costs, like appraisal, environmental, title insurance, attorney. These can also be added to the loan amount.

There are pre-pay penalties, starting at 5% of SBA amount, declining 0.5% each year. I always tell folks, though, if you can get 25-year money at less than 3%, why would you want to re-fi? SBA debentures are assumable, though this is rare. The third party loan is completely separate, save for the conditions of the lender agreement, so prepayment there would be subject to the terms you can get from a lender. Third party loans can be floating or fixed, fully amortizing or balloon. They must, however, carry a minimum 10-year term. You can re-finance a third-party loan and leave the debenture in place, but this is subject to SBA approval, and they generally don't allow cash-outs via third party refi.

I would watch 504 developments as we go into the covid-induced recession. In 2008, SBA used the 504 re-fi much more aggressively to provide companies with balance sheet repair. Use of proceeds was liberalized and fees reduced. In addition, SBA provided liquidity by creating a first lien purchase pool for third party lenders, allowing them to sell their loans upon closing. We may be revisiting that program later this year.

@Zach Quick Yes you can re-fi with a 504, but there are a number of restrictions. You can't re-fi an existing government-backed loan. You have to have had the re-fied loan for at least 2 years and current for the last year. The loan had to be used to acquire 504-eligible assets, Only 20% of loan proceeds can be used for working capital. 

All that being said, lenders still say they are doing 504's and rates are super low--sub-3% for 25-year fixed. I'd expect underwriting standards to tighten now and in the near future, though. Your 7(a) experience was likely due to working with a lender who didn't know or like the SBA system. I've been doing SBA loans a long time. If you have more specific questions, you can PM me.

@Brian S. Employee as reported on your federal employment reports to IRS--form 940 or 941. 1099's don't count.

Hearing today Treasury will ask for another $200 billion and Fed will start buying PPP loans from the banks. This should grease the wheels a bit. Most of these programs go through several iterations before they become useful.

@Jimmy Wen You are allowed a total of $5 million outstanding for all SBA loans. Your EIDL will go towards this calculation and assuming your other SBA loans would not take you over this cap, you could still get loans. Note this applies only to SBA, it has no affect on conventional loans except as it impacts your leverage ratios and debt servicing capacity.

@Carrie Wilson EIDL's track EIN or SSN. One app per number, so you can apply as many times as you can show an EIN or SSN. I'm hearing SBA is prioritizing $10K advance for companies with 10 employees or more. Has anyone else heard this?

@James Sigsbee EIDL's are tied to EIN or SSN so you can make one app per tax number. Proceeds can be used not only for mortgage payments, but other operating expenses as well. Just no debt re-fi or fixed asset purchases. Good idea to keep EIDL money in a separate account and document expenses in case you need to show someone. You are right the EIDL is probably better as the PPP has to flow through a bank or other SBA approved lender. From what I hear, banks are favoring their best customers, those with good deposit balances and significant loans. Keep in mind terms could change. SBA made a couple of significant changes Thursday night.

@Neerav Patel Generally SBA disaster loans track EINs. So if you have separate EINs (including SSN) you can technically submit separate apps. Keep in mind use of funds is restricted to operating expenses and mortgage payments.

The 10K does not have to be repaid. If you get a PPP loan and are granted forgiveness, the 10K is deducted from the amount forgiven. Landlords can apply for EIDL as detailed in SBA's standard procedure for disaster loans. From what I've heard, no banks are yet ready to process PPP apps b/c SBA has not issued guidance that's specific enough. If anyone's gotten a PPP app accepted by a lender, I'd love to know about it. Thanks.

I'm working with several small businesses, both landlords and operating companies to get them EIDL and PPP loans. I'd be interested in feedback on the EIDL and PPP experience, especially if folks are actually getting the EIDL $10K in 3 days. I have heard the app volume has slackened a bit as the EIDL has been out there for a few weeks now, but that it doesn't work so well with Chrome.

Thanks for your feedback--it's valuable info for the people I'm trying to help.

Ken Jernigan