By Alex Musetti & Will Tober

Hughes Marino has, since its inception, believed in educating our clients and informing them of all of their real estate options. Depending on the circumstances, the best option may be to lease space, purchase a building, or construct their own space from scratch. During the complex process, our clients may have lease audit concerns, construction management issues, and in many cases, financing questions.

One of the more common forms of financing the acquisition of a building comes in the form of a Small Business Administration (SBA) loan. We often walk our clients through the process long before we decide to pursue an acquisition, and there is some important due diligence that must take place to determine if SBA financing is a viable option for them or not. In doing so, we often field a myriad of questions related to the SBA itself, and how the loan is applied for, processed, and delivered. In an effort to provide more insight into this intricate process, we decided to go straight to the source to get answers to some of the most common questions we receive from our clients.

In the first of our exclusive three-part series, we sat down with SBA District Director Adalberto Quijada and Lead Economic Development Specialist Christopher Lorenzana for an informative Q&A to learn more about the SBA, its programs and its mission.

Q: Tell us a little bit about the Small Business Administration?

A: The U.S. Small Business Administration is a federal agency, which has helped Americans start and grow businesses for 65 years. We’ve played a part in helping a few businesses launch that you may have heard of…Apple, FedEx, Intel and Nike. But, for every Fortune 500 company we’ve assisted, there are thousands of small businesses leveraging SBA programs and services to start and scale up. After all, even the corporate titans started small.

Q: What kind of resources does the SBA provide for companies, other than financing?

A: Many people are familiar with SBA’s access to capital programs, which are business loans made by lending partners and guaranteed by the SBA for various purposes such as working capital, exporting, hiring additional team members, or buying machinery, equipment and even buildings.

The SBA has so many other resources though that entrepreneurs and small business owners should be aware of. For example, we also provide funding to organizations that provide high quality, expert business consulting and guidance at no cost to the client. It’s already been paid for by the SBA. We also offer various certifications that enable a business to better position itself to earn contracts from the federal government. And with federal agencies procuring over $500 billion/year in goods and services, that’s a market you want to be in.

Besides capital, consulting and contracts, the SBA also plays a key role in disaster recovery. We directly provide low interest loans to homeowners, renters, non-profits and businesses of all sizes to help communities rebuild after disasters.

Q: I have to admit, most of our exposure to the SBA is limited to real estate acquisitions, but it sounds like that is only a minor component of what you do. About how much funding does the SBA provide annually?

A: Nationally, SBA approved over 68,000 loans in the 7(a) and 504 loan programs in FY17. These programs provided over $30 billion to small businesses.

The SBA continues to streamline and improve access to its loan program for small loans and emerging communities, delivering more than $5 billion in smaller loans of $350,000 or less in FY17.

504 loans provide small businesses with long-term fixed rate financing to acquire fixed assets, and are available through Certified Development Companies (CDCs), SBA’s community-based partners. In FY17, the 504 program remained at zero subsidy, and grew to $5 billion in loan volume.

During the fiscal year, SBA launched its online lender referral tool Lender Match. This tool helps connect small business borrowers with participating SBA lenders.

Q: Sometimes we are surprised to learn that larger, established companies can qualify for SBA financing. In the eyes of the SBA, who qualifies as a “small business”?

A: It depends on the industry, but a good rule of thumb is a business with less than 500 employees. In some industries, annual revenue is used to determine what qualifies as a small business. It’s also important to note that small businesses comprise 99.9% of all firms in the U.S. and half of the private sector workforce is employed by small businesses. In fact, small businesses account for about two thirds of net new jobs.

Q: Realizing that the SBA can be a powerful tool for businesses looking to purchase real estate, and given fixed escrow timelines, how can a company best prepare for a successful and timely SBA financing process?

A: An SBA 504 loan is perfect for purchasing real estate, given the 10% borrower contribution and long-term, fixed-rate financing available. Preparation is key to ensure a more efficient and timely real estate financing process. An SBA Certified Development Company (CDC) is a nonprofit corporation that promotes economic development within its community through SBA 504 loans.  It’s also important to work with an experienced lending partner who truly understands and believes in your business and project. Additionally, our SBA Resource Partners can help you get ‘lender ready.’

You’ll want to be sure to have personal and financial documents ready to go, such as tax returns; personal financial statements; cash flow statements for the business that will utilize the real estate; a purchase agreement; any recent opinion of value or appraisal; and estimates of needed property improvements, etc.

Q: Understood. If a company wanted to reach out directly to discuss preparation–or anything else–what is the best way to get in touch with the SBA?

A: The SBA has 68 district offices, some with branch and satellite offices, which means you’re never far away from assistance to help you get your business going or growing. And when you take into account all the SBA-funded Resource Partners, including SCORE chapters, Women’s Business Centers and Small Business Development Centers, help is just around the corner. The best way to find the nearest location to you is to visit www.sba.gov and click on “Local Assistance.”

Stay tuned for part two of our series, where we will take a deep dive into how companies can use the SBA to finance the acquisition of properties with a minimal down payment through the administration of the SBA’s 504 loan program, as mentioned above. We’ll be talking to a Certified Development Company (CDC) about how they administer this process.