SBA Bank Lending approval for a restaurant can be a challenging task to qualify for a buyer and can make the difference of a restaurant selling or not selling. Restaurants for sale that qualify for SBA lending on the market today are far less in numbers than buyers.
The restaurants that sell for the highest and best price are restaurants that qualify for lending. Banks are willing and ready to lend money to buyers, today’s buyer can qualify for an SBA loan with only 10%-30% down.
Think about how much more feasible it’s for a buyer to have $50,000-$100,000 to put down on a $500,000 restaurant for sale, than paying all CASH for the deal. The number of buyers that can buy a listing drastically increases when a restaurant has good books and records that will qualify for SBA lending.
The U.S. Small Business Administration (SBA) doesn’t provide business loans, but partially guarantees loans that banks and other lenders make to small businesses. By partially guaranteeing the loan, they will eliminate some risk and encourage lenders to make loans to small business owners.
EATS Restaurant Brokers focus for this blog is on the U.S. Small Business Administration’s (SBA) Loan Guaranty Programs. These programs are used mostly in main street restaurant transactions that are listed for $100K-$3,000,000.
3 most common SBA Loan Programs for restaurant sales and purchases.
7(a) Loans- Maximum loan amount $5 million.
SBA Guarantees- 85% guaranty for loans of $150,000 or less; 75% guaranty for loans greater than $150,000
(up to $3.75 million maximum guaranty)
Use of Proceeds: Term Loan. Expansion/ renovation; new construction, purchase land or buildings; purchase equipment, fixtures, leasehold improvements; working capital; refinance debt for compelling reasons; seasonal line of credit, inventory or starting a business
Maturity: Depends on the ability to repay. Generally, working capital & machinery & equipment (not to exceed life of the equipment) is 5-10 years; real estate is up to 25 years. When loan proceeds are used for multiple purposes maturity may be a blended maturity.
Maximum Interest Rates-Chart Version: September 2018
Loans less than 7 years: $0 – $25,000 Prime + 4.25% $25,001 – $50,000 P + 3.25% Over $50,000 Prime + 2.25%
Loans 7 years or longer: 0 – $25,000 Prime + 4.75% $25,001 – $50,000 P + 3.75% Over $50,000 Prime + 2.75%
Misc: Must be a for-profit business & meet SBA size standards; show good character, credit, management, and ability to repay. Must be an eligible type of business. Prepayment penalty for loans with maturities of 15 years or more if prepaid during first 3 years. (5% year 1, 3% year 2 and 1% year 3) Long-term financing; Improved cash flow; Fixed maturity; No balloons;
(7a)Small Loans- Maximum loan amount $350,000- Is any 7a loan $350,000 and under, except the Community Advantage and Express loans.
Use of Proceeds: Term Loan. Expansion/ renovation; new construction, purchase land or buildings; purchase equipment, fixtures, leasehold improvements; working capital; refinance debt for compelling reasons; seasonal line of credit, inventory or starting a business.
Maturity: Depends on the ability to repay. Generally, working capital & machinery & equipment (not to exceed life of the equipment) is 5-10 years; real estate is up to 25 years. When loan proceeds are used for multiple purposes maturity may be a blended maturity.
Maximum Interest Rates-Chart Version: September 2018
Loans less than 7 years: $0 – $25,000 Prime + 4.25% $25,001 – $50,000 P + 3.25% Over $50,000 Prime + 2.25%
Loans 7 years or longer: 0 – $25,000 Prime + 4.75% $25,001 – $50,000 P + 3.75% Over $50,000 Prime + 2.75%
Misc: Same as 7(a) Loans. Plus, all loan applications will be credit scored by SBA . If not an acceptable score, the loan can be submitted via full standard 7(a) or Express.
SBA Express– Maximum loan amount $350,000
Use of Proceeds: May be used for revolving lines of credit (must have term out period not less than draw period) or for a term loan. Same as 7(a)
Maximum Interest Rates: Loans $50,000 or less; prime+ 6.5% Loans over $50,000; prime + 4.5%
Misc: Same as 7(a) Loans Fast turnaround; Streamlined process; Easy-to-use line of credit
SBA Veterans Advantage – Maximum loan amount $350,000
Use of Proceeds: May be used for revolving lines of credit (must have term out period not less than draw period) or for a term loan. Same as 7(a)
Maximum Interest Rates: Loans $50,000 or less; prime+ 6.5% Loans over $50,000; prime + 4.5%
Misc: Same as 7(a) Plus, small business must be owned and controlled (51%+) by one or more of the following groups: veteran, active duty military in TAP, reservist or National Guard member or a spouse of any of these groups, or a widowed spouse of a service member or veteran who died during service, or a service-connected disability
The SBA Loan Guaranty Programs are a good option for business owners who need working capital or want to expand or acquire a restaurant.
For more information on the restaurant market and other available consulting services or restaurant valuations, contact Dominique Maddox at 404-993-4448 or by email at [email protected]. Visit our website at www.EATSbrokers.com
