SBA alternative for small California Deals

May 07, 2020

by a searcher from Northwestern University - Kellogg School of Management in Los Gatos, CA, USA

To anyone searching in California, I just learned about a state small business loan guarantee program that is active and appears to be an excellent alternative to SBA 7a acquisition loans, for anyone contemplating that route. Details below. If you've actually done this, please share your experience!

The program site is at https://ibank.ca.gov/small-business-finance-center/

- CA iBank guarantees 80% of the loan balance, up to $1M of guarantee (eg. 1.25M loan) with min debt service coverage of 1.25.
- iBank works through 1 of 7 regional financial development corporations (listed on their site).
- The actual loan is underwritten, issued, and serviced by one of their 35 participating lenders - the FDC will refer you to an appropriate lender for whatever deal you are looking at.
- The commercial term loan is 7Y with 30y amort priced at prime + risk-based margin (determined by lender).
- Lenders are much less aggressive on collateral vs. SBA and are used to doing acquisition loans
- They also have an Express Loan product which is a interest only max 150K revolver that converts to 3Y fully amortizing term loan @ 4% interest

Reply by a lender
in Yorba Linda, CA, USA

I have used the program before for acquisitions. It was somewhat challenging to run an acquisition through the underwriting process. The program is not used for that often, unfortunately, so getting through the approval committee with an acquisition deal was not very straight-forward. That said, I could certainly entertain these deals if the borrower is ok with tackling the process with us.

Reply by a searcher
from The University of Auckland in Los Angeles, CA, USA

Is this California State Loan Guarantee Program? I like it but can't get lenders to use it as they say claims are difficult compared to SBA in the event of loan default. And shorter amortization window (compared to SBA) is burden on cash flow. But the Express Loan product sounds useful - is that unsecured? Thanks

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