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Is a SBA 7a the best way?

As the world gets ready for the winter, business owners find themselves in a different position.  It is very difficult to be a small business owner today. With the technology and mobile phones, it has become very difficult for small business owners to filter the amount of information they are constantly receiving.  Junk emails, robo […]

Is it time to refinance my SBA 7a or 504 loan?

If you have a SBA 7a or SBA 504 loan, it may be a good time to refinance your commercial property with a conventional loan.  SBA 7a has been around for a long time, it was based on the small business act of 1953. SBA has come a long way for small business community to receive loans with the guarantee of the federal government.  SBA loans are very expensive because of the fees associated with SBA 7(a) First Million @ 3.5% and Remainder up to $5MM, there is 3.75% charge. So if you have an SBA 7a loan, you should not want to refinance that SBA 7a loan with another SBA 7a loan, why because you will pay the same 3.5% fee on first million and 3.75% on the rest up to $5M.

There are particular businesses that have benefited from the SBA 7a loans which are the special use properties like: Gas Stations, Hotels, Car Wash, theaters and Bowling alley’s to mention a few.  In all of the cases, Hotels are different because of the dual nature of the real estate. Hotels can be categorized as a Commercial Real Estate or as an Owner Occupied small business. Two different ways of looking at the same investment.  There is hotel operator and hotel investors. They are two different types of investors. One wants to be passive investors and receive a monthly check like a bond owner, the other the hotel operators are the ones who meticulously manage their hotel as a business.

Hotel Investors that are looking for investments and return on capital uses the capital markets to finance their hotels in the CMBS (Conduit Loans).  This market is an open market with transparent information. Most of the loans are packaged as a pooled loans, so the underwriting, packaging and the process is streamlined for efficiency. There are many different convents that the borrower enters into, and without some expertise, you may wind up unintentionally breaking convents.  There are rules with the PIP deposits, sub accounts with various hard dollar amount required, plus the legal fees that can really shock anyone who has not been through the CMBS process. However, if you are an investor and want the best loan possible with rates and features that you want, it could be the answer for you.

Hotel operators are the ones who have been using the SBA 7a and SBA 504 to grow.  Today after the Trump administration entered into the SBA, they have changed the way hotels are underwritten and the requirements have become so difficult, that many are trying to find an avenue to finance their hotels.  SBA 7a allows you to finance up to $5M in SBA 7a loan, to complicate this even more, SBA individual limit is $5MM, which is based on the original loan amount. So if you paid down the SBA loan, it does not matter, SBA will continually calculate your SBA individual limit as $5MM.  There is a solution to this, SBA 504 Green where you can have an unlimited amount of SBA 504 Green loans.

Let’s get together and determine if it is time to refinance your business.  We offer custom tailored business solutions for all our clients needs.

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