SBA and USDA loans, explained plainly.
The SBA guarantees part of the loan. That lets lenders say yes to businesses that might not qualify under conventional underwriting. Think of the guarantee as an insurance policy for the bank.
Lower down payments
Often as low as 10%, and for some expansion projects, no money down.
Lower monthly payments
Longer loan terms keep payments lower, which helps your cash flow.
More flexibility
Options like interest-only payments early on, or deferred payments, and more flexible collateral.
Which loan fits your project?
Pick what you want to do and the loans that can do it stand out.
How the SBA lending process works
Paul stays with you through each stage and compares the final terms to what you were offered at pre-qualification.
Pre-qualification
Paul can get you a pre-qualification letter. It tells the broker and seller that a lender has reviewed your financials and you are a good candidate.
Underwriting and due diligence
The lender reviews all financials and orders required reports, such as a business valuation, appraisal or environmental report. Questions from the lender and third parties are normal.
Closing
The lender seeks final approval and prepares the loan documents. Paul goes over the terms with you to confirm they match the pre-qualification.
A real estate purchase or business acquisition typically takes 45 to 65 days from your first conversation with a lender.
SBA questions, answered
Straight answers to what owners ask most.
Where can I get an SBA loan?
Contact Paul if you are in Washington, Oregon or Idaho. If you are outside these three states, you can reach a national lender at sbaray.com.
Do SBA lenders care more about collateral or cash flow?
Cash flow. That said, many SBA lenders also want some level of collateral, and each lender has its own risk tolerance when it comes to lending without it.
Do I need to provide a personal guarantee?
Yes. Anyone who owns 20% or more of the business provides a personal guarantee.
Will I need to pledge my house as collateral?
If you own real estate with 25% or more equity, you will need to pledge that equity toward the loan until it is fully secured, or all available collateral has been pledged, whichever comes first.
What are the SBA debt service coverage requirements?
The SBA requires a minimum debt service coverage of 1.15x, but that is only the minimum. Most lenders want to see over 1.25x.
How much cash does the SBA require me to put down?
The SBA has a 10% minimum equity injection for three types of projects: business acquisitions, start-ups and some partner buyouts. Outside of these, the lender decides whether an equity injection is needed and how much.
Do seller notes need to be on full standby?
Seller financing can count toward your equity injection when buying a business. If it contributes to your required 10%, the SBA typically requires that up to 5% of your down payment covered by seller financing be on full standby for the entire loan term.
Are there types of businesses the SBA does not lend to?
Yes: passive businesses, businesses that promote religion, gambling businesses, strip clubs, and anything illegal at the federal level, among others.
How long does the process take?
It depends on the project. A real estate purchase or business acquisition typically takes 45 to 65 days from your first connection with a lender. Getting the lender what they need quickly makes it faster.
Can I acquire part of a business?
Yes, but any remaining owners with 20% or more ownership must personally guarantee the loan.
Are earn-outs allowed in a change of ownership?
No. The purchase price must be fixed. Some buyers use a forgivable seller note in their structure to protect against downside risk.
Not sure which loan fits? Ask Paul.
Tell him what you are trying to buy or fix. He will tell you what to prepare, and whether an SBA loan is the right tool.
Outside Washington, Oregon and Idaho? Find a national lender.