As lenders, we have all run into our share of challenging projects. Those challenges come from different aspects of the deal. Sometimes it is credit concerns about the borrower, other times the project might not have enough collateral, and still other projects might just not have enough management experience. Whatever it may be, SBA is usually a good mitigant to help get a deal done.
One other specific challenge where SBA can be a particularly useful mitigant is lending into industries with special purpose type properties. Examples of such industries include Gas Stations, Car Washes, Hotels, Assisted Living and Golf Courses to name a few. Traditional lenders tend to shy away from lending into these industries, unless the borrowers are willing to provide very large down payments or provide other, less specialized, collateral to help secure the loan.
Many of the small businesses that operate in these industries are profitable, have solid management and strong personal credit and wherewithal behind them. But even with that, many lending institutions have more stringent lending requirements before a conventional loan can be made.
One alternative solution, other than additional down payment or additional collateral would be to use the SBA 504 loan program. The 504 program provides subordinate financing to the bank, leaving the 1st mortgage lender in a 50% Loan-to-Value. This allows the bank to meet their loan policy requirements to lend to these industries, while also allowing the small business owners to conserve their cash to operate and grow their businesses. WBD has been very active in lending to “Special Purpose” industries. In the last 5 years, we have done 150 loans for $542,000,000 in total project financing ($168,000,000 WBD portion) to these types of businesses.
Instead of saying no to these industries, or trying to fit them into conventional financing, give your local WBD loan officer a call and see how the SBA 504 program can assist!
