There are two SBA programs that we use. Each has different parameters. First is the SBA 7a program. These are loans up to $5,000,000. We use this program primarily for borrowers who are purchasing a hotel or building a hotel. These loans typically are made by lenders who are in the preferred lender program of SBA. They underwrite according to SBA guidelines and fund the loans themselves. These loans are typically for a 20 or 25 year term and up to 85% of cost.
Interest rates vary greatly between individual lenders and can run from Prime rate plus one point to Prime plus 2.5 points. The statutory prepayment for these loans is 5 - 3 -1. So after 3 yeas they can be per-payed without penalty. We have been successful in refinancing older SBA loans into new CMBS loans.
The second SBA program is the SBA 504 loan. We also use this program for hotel purchase and hotel construction This is a combination of two loans. A conventional first mortgage of 50% of the project cost. Then a second mortgage made by a Community Development Company and bearing an SBA guarantee equal to 30% of the project cost. The total amount of financing is 80% of total project cost. Financing can be as much as 80% of $16,500,000 total cost.
The term of these loans is 20 or 25 years. The interest rate on the CDC portion of the financing is currently around 3.5%. The interest rate on the conventional portion of these loans can range from 5%% to 7%. You can expect a blended rate around 6%. There is a prepayment penalty on the CDC portion of the loan roughly equivalent to yield maintenance for the first 10 years. On the bank portion it is the usual for the funding bank.
The interest rate that you pay on SBA financing is heavily dependent on your Personal Financial Statement. If you have a weak statement your rate will be high if you can get a loan. SBA loans require a personal guarantee from the borrower.
Also in this category is USDA loans. These are loans intended for rural areas. In general they are similar to SBA 504 loans but are one lender with a USDA guarantee. The usual loan limit is $10,000,000.
