SBA lowers equity requirements for new commercial loans

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SBA lowers equity requirements for new commercial loans

Arizona-Home-Loan-Team-Matt-and-Judy-Callahan-300x199As of January 1 the SBA announced it would lower equity requirements for new 7a loans. 7a borrowers will only need to finance 10 percent of future projects to qualify under the program.

The SBA 7a loan is the agency’s most popular lending program. The 7a loan provides 5 million dollars of capital to finance new projects, startups and business expansion. There are few restrictions on 7a proceeds when compared to the SBA 504 loan. 7a proceeds can be used to finance construction costs, business acquisition and can even be used to refinance existing debt. Lowering the equity requirement will help more small businesses finance expansion and acquisition projects over the course of the coming year.

Under the new requirements more borrowers will undoubtedly be able to qualify for an SBA 7a loan and the program is likely to continue to expand at a rapid pace. Even under the previous requirement of 25%,the 7a program has rapidly expanded in recent years. The SBA has backed 3 billion in new loans from the start of the fiscal year beginning last October, an 11% year-over-year increase. in 2017 the SBA backed a record 25.8 3 billion in new 7a loans. the lower requirement will no doubt help the agency break last year’s record for new loans.

Commercial loans related to business acquisition will increase under the new equity requirement, which matches demographic and economic trends.

“We have an aging ownership population. … The baby boomers are starting to reach their retirement years, so we’re seeing a lot of entrepreneurs who started successful companies looking for transition plans,” said Tom Pretty director of SBA lending at TD Bank. Pretty remarked that the lower equity requirement marks a “powerful change” in standard operating procedure at the agency. A recent survey of borrowers at TD Bank revealed a third of small business borrowers sought loans related to business acquisition, expansion and partner buyout. The lower equity requirement will help finance the sale of businesses owned by baby boomers, as this population continues to retire over the coming year.

The lower equity requirement will help boost commercial lending related to business acquisition.

Loans related to business expansion acquisition are considered risky by most banks. These loans usually involve little in the way of collateral on the part of borrowers and therefore most banks are unwilling to underwrite these loans. The lower qualifications under the 7a program will help more borrowers qualify for acquisition loans partially guaranteed by the government. This government guarantee will encourage more banks get involved in financing the deals in the future.

Entrepreneurs looking to finance partner buyouts, expansion plans, business acquisitions and other projects will no doubt turn to the SBA as a vital source of financing.The lower equity requirement means such borrowers will only need to provide ten percent up front in order to qualify under the program. The lower equity requirement will help small businesses receive sufficient capital in order to expand as they see fit.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
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About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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