SBA 7a Lease Requirement

August 01, 2022

by a searcher from Babson College - F.W. Olin Graduate School in Austin, TX, USA

Hey all -

For those who've gone through SBA financing and had to work through a transfer of lease, how have your worked through the 10-yr lease requirement? From what I understand there are two options: 10-year lease, 5-year lease + 5 year option.

I'm wondering if there are options here. The company I am under contract with has two locations and two different landlords. Landlords are okay with 5-year lease, however, nearly a hard no on the 5-year option.

Any insight/guidance would be helpful.

Thanks!

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Reply by a professional
from University of Minnesota in Minneapolis, MN, USA

Commenting on this old thread for future eyeballs: I have seen SBA deals where they are flexible on the lease requirements, in particular if the leased space isn't critical to the business (i.e. some random office space that is easily replaced) or if there are other plans in place for the business to relocate (i.e. a written option for new space . The lender just needs to know there is SOMETHING in place for the duration of the term of the loan so the business isn't stuck without a place to call home. Have conversations with your lender, and also make sure your Landlord knows this isn't you being a jerk pushing for excessively long extensions, it's your bank.

And if you build in some financial upside for your LL on the optional extensions (i.e. 6% increase per year or something on the high end of market) you can always use your option as leverage to renegotiate down the road if the RE market has drastically changed and you have other options - with the caveat that the Landlord doesn't HAVE to renegotiate.

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

As a general rule the SBA requires up to a 10 year loan term to match the term of the SBA loan. You can get there by having the term be less than 10-years if you have options to extend beyond 10 years. Those options have to be your options though. The landlord cannot choose to cancel the options.

However, depending on the type of business, there may be flexibility it not having a 10 year renewal. If the business is a restaurant or some sort of destination location with required build-out to operate, a 10-year lease is almost always going to be mandatory. However, if it is just generic office space with no specific build-out and the location can easily be replaced, then sometimes the lender will accept a lessor lease.

If you would like to discuss options directly, I would be more than happy to do so. You can reach me at redacted

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