How does SBA blend the term when a deal includes a building?
Short answer
The term is a weighted average of the uses of proceeds, rounded to the nearest full year. Only the real estate portion can exceed 10 years, up to 25. Source: SOP 50 10 8.1, App. 15, Para. B.1.
The term is a weighted average of the uses of proceeds, rounded to the nearest full year. SOP 50 10 8.1, Appendix 15, Para. B.1, sets this for changes of ownership that include real estate.
The inputs
- Real estate portion: up to 25 years.
- All other uses, including soft costs and working capital: 10 years.
The calculation is made before any equity is applied and must be stated in the credit memorandum.
A worked example
Say the uses are $1,100,000 of real estate, $700,000 for the business and $200,000 of working capitalMoney for day-to-day costs such as payroll, rent and inventory. Full definition. That is 55% at 25 years and 45% at 10 years. The blend is 13.75 plus 4.5, or 18.25 years. It rounds to 18 years.
How this differs from other 7(a) loans
The general rule allowing 25 years when 51% of proceeds go to real estate excludes changes of ownership (Appendix 17, Para. A.5). The overall limit is 10 years of amortizationPaying a loan down on a schedule, so each payment covers interest and part of the balance. Full definition, with only the real estate portion allowed up to 25 years on a blended basis. SBA does not allow balloon payments.
Other structures
- Separate loans: one for the change of ownership and one for the real estate, which can be a 504. A 504 cannot be blended.
- Special Purpose Property: a single loan may run up to 25 years if 85% or more of total project cost is real estate. The property must be integral to the business.
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