SBA AND USDA Loans
SBA and USDA loans are provided by our correspondent community banks located throughout the United States. In addition, SBA and USDA loans are available in the New York metropolitan area from our affiliate bank, Country Bank.
Country Inn & Suites
$1,950,000 SBA 7(a) Loan
WHAT ARE SBA AND USDA LOANS?
SBA loans are commercial mortgage loans secured by owner-occupied real estate properties that are partially guaranteed by the U.S. government or provide below-market interest rates to borrowers using the credit of the U.S. government.
USDA loans are commercial mortgage loans partially guaranteed by the United States Department of Agriculture (USDA) secured by owner-occupied real estate properties located in rural areas. The loans are guaranteed through the USDA Business and Industry Loan (B&I) Program.
America’s Best Value Inn
$788,000 SBA 7(a) Loan
Holiday Inn Express
$4.740,000 SBA 504 Loan
How Are SBA and USDA Loans Underwritten?
SBA and USDA loans are underwritten based on the federal income tax returns for the property being financed.
SBA and USDA loan underwriting also considers income the property owner earns from other sources, such as salary income or net income from other real estate sources. In addition, SBA and USDA loan underwriting considers the income from other commercial property and businesses owned by the borrower. As a result, SBA and USDA loan underwriting can be cumbersome if the property owner owns many properties and businesses.
What Is the Structure of SBA and USDA Loans?
The typical structure of a SBA 504 loan is a 50% first mortgage loan provided by a commercial bank or finance company and a 40% second mortgage loan provided by a government-sponsored Certified Development Company (CDC) and 10% equity provided by the buyer (15% equity required for certain projects like special purpose buildings such as a car wash or hotel) or for startup businesses.
The loan term on the first mortgage loan is set by the commercial bank or finance company with typical term options of 3, 5, 7 or 10 years, with payments made based on a 20- or 25-year amortization schedule. The first mortgage loan can be fixed or floating rate. The second mortgage loan is a 20- or 25-year fixed rate. The second mortgage rate is typically very competitive because it is based on the credit of the U.S. government.
SBA 7(a) loans are floating-rate loans based on a margin over the Prime rate. The maximum allowed margin is Prime plus 2.75%. The loan term for an SBA 7(a) loan is 25 years. The loan amortization period is also 25 years.
What Types of Income-Producing Commercial Real Estate Are Eligible for SBA and USDA Loans?
None. Income producing properties are not eligible for SBA loans. However, hotels, self-storage and independent/assisted-living properties that can be considered income-producing are eligible for SBA loans if they are owner-operated.
What Types of Properties Are Not Eligible for SBA and USDA Loans?
In general, it’s more difficult to obtain SBA and USDA loans for construction and substantial rehabilitation projects.
What Loan Amounts Are Available for SBA and USDA Loans?
SBA and USDA loans are available for loan amounts from $1 million to $15-plus million.
Can Mezzanine Financing Be Added to SBA and USDA Loans to Increase Leverage?
Yes. In certain instances, secondary financing is allowed, subordinate to an SBA and USDA loan.
What Is the Demographic Criteria for SBA and USDA Loans?
SBA and USDA loans are available for properties in all 50 states and Puerto Rico with no population restrictions; however, USDA loans are only available for properties located in rural areas. To determine if your property is located in an eligible area, please visit https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
What Are the Costs to Obtain SBA and USDA Loans?
The majority of the costs to obtain SBA and USDA loans is the fees for an appraisal, property condition report, and Phase I environmental site assessment and lender’s legal charges.
In addition, typical commercial real estate loan closing costs include title insurance costs, survey charges and borrower counsel fees. The typical expense deposit to cover these costs is $7,500-$15,000. The SBA 7(a) program requires the borrower pay a guarantee fee.
The SBA 504 program requires the first mortgage lender to pay a 0.50% fee to the SBA. This fee is typically passed on to the borrower.
What Are the Prepayment Penalties for SBA and USDA Loans?
The prepayment penalty for an SBA 504 loan consists of two parts:
- The prepayment penalty for the 50% first mortgage loan set by the commercial bank or finance company that provides the first mortgage loan. The prepayment structure is typically a declining structure, such as 5%-1% for years 1-5 with a 5-year term. This means the prepayment penalty is 5% in year 1, 4% in year 2, 3% in year 3, 2% in year 4 and 1% in year 5. In year 5, a window of 3-6 months is available to prepay without penalty.
- The prepayment penalty for the 40% second mortgage loan provided by a government-sponsored Certified Development Company (CDC) declines over the life of the loan and is eliminated entirely half way through the loan term. The prepayment penalty for a SBA 7(a) loan is set by the government and is 5% in year 1, 3% in year 2 and 1% in year 3. The loan is open to prepayment without penalty after year 3.
MD Auto Repair
$465,000 SBA 7(a) Loan
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