Feedback on SBA 7a commitment letter terms

November 16, 2024
by a searcher in Dallas, TX, USA
I'd appreciate some feedback on whether some terms included in a commitment letter for an SBA 7a loan are SBA-required or negotiable with the bank:
Deal overview: $7.5 million acquisition of a 20+ year old construction business that does $10 million revenue, $2.5 million EBITDA (3x purchase); 10% buyer equity (me, 100% owner), 20% seller note, remainder from SBA 7a loan.
SBA 7a commitment letter terms: P+225, lien on my home for 1.5x appraised value, 10-year life insurance policy on me for the amount of the loan, requirement to close my undrawn HELOC before closing.
Home lien: I have around $1 million equity in my home (after remaining 1st mortgage). I took out a HELOC a few weeks ago; however, the bank requires I close the undrawn HELOC so they have collateral. Is 1.5x appraised value the standard lien amount? If my house appraises for $2 million, that's $3 million lien.
Summary: $3 million lien on my house with $1 million immediate claim on equity, 75% guarantee on their loan from the $130k SBA guaranty fee I pay, life insurance policy for the full loan amount and the full term of the loan that I pay, unlimited personal guaranty on me (cash, other investments, 401k) and limited personal guaranty from my wife, 800+ credit score; for a 70% LTV business loan paying 10% interest.
from St. John's University in Ponte Vedra Beach, FL 32082, USA
from University of Southern California in Los Angeles, CA, USA