Let’s review how Small Business Administration (SBA) financing can help your business to grow and expand.
Congress created the SBA all the way back in 1953 to “aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns”. Over the ensuing 70 years, the SBA has helped small businesses in a wide variety of ways, but its most impactful form of support has been guaranteeing loans for small business. With small businesses being the engine of our economy, the SBA provides vital support so that America’s small businesses are able to create jobs, contribute to the economy and, in the process, strengthen communities. You might be surprised to learn that the SBA does not actually lend money to businesses, but rather it incentivizes banks to lend by guaranteeing a portion of the banks’ loans. SBA loans can be used to finance a variety of SBA-eligible purposes including business startups; business acquisitions; partner buy-outs; real estate or equipment purchases; debt refinance; working capital and more. Today we are examining one specific use of SBA financing and that is the expansion of an existing business.
When a business requires capital to grow or expand, the SBA’s flagship 7(a) loan program is often an ideal solution. This flexible program allows for loans up to $5 million for many different expansion initiatives. Gulf Coast Small Business Lending has provided SBA loans to borrowers for both real estate and non-real estate expansion purposes or, sometimes, a combination of both.
Typically, owner occupied real estate transactions have a 25 year fully amortizing term while expansion loans that do not include owner occupied real estate have a 10 year fully amortizing term. The rates on SBA loans are competitive, but more importantly, SBA loans require smaller equity injections (also known as a “down payments”) so that the business owner keeps more capital in the business. The long-term amortizations of SBA loans result in lower monthly payments than those of typical conventional loans allowing the small business owner to maximize business cash flow for continued growth. Let’s take a closer look at the various expansion loan options:
Real estate projects:
Gulf Coast Small Business Lending can help a business expand by financing owner occupied commercial real estate. This might be the purchase of a building, or it could be the purchase of land with an accompanying construction loan used for the small business to move into a larger owner-occupied facility. Note that with new construction, the business will need to occupy a minimum of 60% of the completed facility to qualify for SBA financing. Real estate projects can be financed with an SBA loan for up to 90% of the total project cost.
If the SBA 7a expansion loan is used to purchase an existing building (in other words, NOT new construction), then the business will need to occupy at least 51% of the building it purchases. If the business is purchasing a building it already leases, Gulf Coast Small Business Lending may be able to finance 100% of the purchase price, in certain instances.
A benefit to business owners owning their building is that they can build additional wealth through real estate appreciation.
Buying a competitor:
One fast way for any business to expand is by acquiring a competitor business. In certain circumstances, Gulf Coast Small Business Lending can finance 100% of a competitor purchase. These transactions have a 10 year loan term unless the majority of the loan’s proceeds purchase owner occupied real estate which extends the term to 25 years.
Buying Equipment:
Many businesses rely on equipment to operate successfully. For these companies to expand, additional equipment is required for their growth. An SBA loan is a great option for equipment purchases because your business can finance 100% of the purchase on a term matching the equipment’s useful life, frequently a 10 year term.
Franchise Unit Expansion:
Many franchisees begin by opening and operating one franchise unit. When they decide to add additional franchised units, an SBA expansion loan is a terrific fit. Gulf Coast Small Business Lending has a dedicated and experienced franchise lending group for this very purpose. These business loans frequently finance construction costs to build out a new location, purchase equipment, furniture and fixtures, provide working capital and closing costs. For well qualified borrowers, Gulf Coast Small Business Lending may finance 100% of the project on a 10 year term.
Working Capital:
Frequently, an SBA expansion loan includes working capital for the business. Sometimes operating capital is the sole use of the loan proceeds. If the only use of loan proceeds is working capital, then the loan term is 7 years. More often it is one element of the expansion loan’s proceeds which can increase the loan term to 10 years.
Multiple Borrowing Purposes:
It is not uncommon for a small business to request an expansion loan that covers more than one of these loan purposes. For example, a new building might also require additional equipment and working capital. We recommend speaking with a Gulf Coast Small Business Lending representative so that they can better assess your unique borrowing needs and how an SBA loan might best address those needs.
Now that you know some of the uses for an SBA loan to expand your business you might be wondering about the process and timeline. We will gladly review your specific situation with you but, in most cases, you’ll start the process by sending a checklist of documents to your Gulf Coast Small Business Lending representative. We will review these documents to gain a better understanding of your needs and, once everything is in order, your request will be submitted to underwriting. From there it typically takes 7-10 business days for our underwriting team to make a loan decision. If approved, your loan will usually close within another 4 weeks or so. Of course, if you remain actively involved and provide all the necessary documents, this might move more quickly.
If your business could benefit from an SBA loan, please contact us at https://gulfcoastsba.com/our-people/. Gulf Coast Small Business Lending is a direct, nationwide SBA Preferred Lender. Let’s talk about how we can help your business succeed with an SBA loan.
Chris McIntosh has over 20 years of commercial lending experience, including an exclusive focus on SBA and USDA lending since 2017. In his business development role at Gulf Coast Small Business Lending, Chris works with referral partners and borrowers nationwide and enjoys putting together customized financing solutions to help entrepreneurs achieve their dreams. Over the years Chris has developed a specific expertise in structuring SBA loans for business acquisitions, franchises, real estate purchases, and construction. Chris studied history at Washington University in St. Louis and when not working on deals, Chris’s hobbies include running (daily), cooking, hiking, and traveling with his wife and two sons.
Products and services offered by Gulf Coast Small Business Lending, a division of Gulf Coast Bank & Trust Co. Nothing herein shall be construed as a commitment to lend. All loans are subject to credit and collateral approval. Additional terms, restrictions and limitations may apply. Loans are only available to U.S. citizens and residents. Member FDIC – Equal Housing Lender.