Funding for a non-SBA deal

May 20, 2024

by a searcher from The Ohio State University - Max M. Fisher College of Business in Columbus, OH, USA

I'm currently in the process of acquiring a distribution company and am ready to submit a Letter of Intent (LOI). However, I've encountered a hurdle with the lease terms. The landlord is only willing to offer 2-3 year leases, while SBA loans require a 10-year lease to match the loan term.

I'm looking for advice or recommendations on alternative investors or loan options that don’t require such long lease agreements. Has anyone successfully navigated a similar situation using non-SBA funding? Any insights on alternative funding sources or strategies would be greatly appreciated.

Not that the short term lease is to be over-looked, but something I will workout in the contract

Thank you in advance for your help!

0 Likes

27 Replies

314 Views

Replies

Reply by a searcher
from University of Pennsylvania in Seattle, WA, USA

Thanks for the tag. I would talk to several SBA lenders. My understanding is that the 10 year lease does have some wiggle room and waivers are possible. This is especially true for real estate that is non-differentiated. If you are leasing a standard warehouse that is easy to find an alternate for on the open market, that makes it easier. I am sure 3 years is going to make any lender nervous so you will need to get them comfortable to push for an exception.

I would consider showing your lender how easy it would be to find a new space and even consider having money set aside for move expenses. The 10 year is also inclusive of extensions, would the landlord allow a 3 year lease with a few extensions included? Prior to negotiating an extension on the lease with my seller, I had a 7 year lease and my SBA lender was willing to move forward with the loan but appreciated that I continued negotiating and was able to secure a 10 year lease.

If all that is too much, you can go the non-SBA financing route but it gets much more challenging for the standard SBA deal - expect to need to bring more equity to the table. I haven't talked to a conventional lender in over a year but last I heard was ballpark of 5 year term w/fully amortizing loan and max leverage of 2.5 turns of debt - for all the deals I looked at, this was a non-starter.

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

^redacted‌ thank you for the tag. I agree with some of the comments above. One point of clarification. The SBA in general requires you have a 10 year lease or options to get to 10 years. However, this is only necessary if the space is key for the business. A good example would be.a retail location that the business has been in for a long-time and where there would be a large cost to move the business and build out new space. A lender will not want you to have the risk of having to move the business in the short-term with the large SBA debt burden. However, we have done plenty of deals where if the space is not key for the business and there is plenty of other affordable space in the market, that we have gotten the deal done with a shorter loan term. There is flexibility in the rule.

I would be happy to have a discussion and see if we can provide assistance here. You can reach me here or directly at redacted One thing to keep in mind is that conventional or alternative lending is going to have much worse terms likely than SBA financing, so if you can find a way to make it work with an SBA lender you will likely be better off. Good luck!

+25 more replies.

Join the discussion