[Curtis Frieden]

Curtis Frieden

Hi all,

I’m in the process of acquiring another business using an SBA loan. When I initially started the conversation about using them for a loan, we discussed my real estate portfolio and how our investment property wouldn’t need to be collateralized. Now, as we are going through the final stages, they are asking to put a lien on my rentals which I’m obviously not happy about.

All of the properties are in individual trusts and pass through on to my tax return. I mentioned I don’t technically “own” these properties but apparently the SBA doesn’t care (I’ve asked for specific documentation to review). Their response is “The SBA considers trusts as “self-imposed restrictions”. If they are in a trust, they will require the trust to be a guarantor.”

My initial thoughts are stripping the equity by placing a lien on the properties myself and have the SBA get a 3rd position but am unsure of the process on that as I’ve never done it.

Any other thoughts or suggestions?

[Dee L Graber]

Dee L Graber

.
Curtis, it sounds as though the guarantee demanded by the SBA was per pre-bailout era rules. That world just changed this last Friday with a huge chunk of federal cash that expanded the SBA to now exceed the size of Walmart. And with that came a radically different set of rules. See this article:

The ‘Small’ Business Administration is now bigger than Walmart

The ‘Small’ Business Administration is now bigger than Walmart

Excerpt:
“According to this new bailout legislation, “no personal guarantee shall be required,” and the government “shall have no recourse against any individual shareholder, member, or partner . . . for nonpayment”.

In other words, the legislation implies that these loans don’t have to be paid back.

Moreover, the law also states that “no collateral shall be required for the covered loan.”

So you don’t even need any assets to qualify. In fact you need barely anything to qualify… except a pulse.”

There’s a good chance that the new rules might take a little time to filter through the SBA … as happens with any huge bureaucracy. Wouldn’t it be convenient to obtain that loan under the new conditions where the SBA is prohibited from demanding the loan guarantee they could legally do only through the end of last week — but no later!

–Dee

.

[Curtis Frieden]

Curtis Frieden

Thanks Dee,

I believe that those loans are for existing businesses and to pay payroll. In my case, the loan is being used to acquire the business in much the same way you use a mortgage to acquire a property.

We actually reaches out to the SBA agent directly to get confirmation of the requirement.

[Dee L Graber]

Dee L Graber

.
Curtis, I’m glad you spotted that difference. I didn’t. So where does that leave us?

Realize that CashFlowDepot’s guiding philosophy focuses on low risk deals involving little or even no out-of-pocket cash. That includes avoiding loaned cash if at all possible. All that means is that your proposed deal is well out of the CashFlowDepot’s traditional scope.

That being said, I’m going to suggest that as long as your proposed acquisition meets your risk minimization requirements, and is compatible with your skill and experience (whether you would be an active operator or simply a remote owner), that you consider the possibility of seller financing as an alternative to using traditional lenders such as the SBA. Take a look at this article and see if it fires up your imagination:

Owner financing for business acquisition without using a traditional lender

https://www.lendgenius.com/blog/owner-financing/

And if you and the present owner are not able to come to terms on the details of a seller financing arrangement, perhaps this is not the deal for you. So many small business acquisitions involve some element of seller financing that eventually you will find the right one that won’t tie up your other property(s) as collateral.

Respectfully,

–Dee