View Full Version : Structuring a potential SBA Loan??? Not sure how this is done

12-12-2016, 11:33 AM
I had a question regarding a SBA loan and the potential loan/business structure required to qualify for a SBA loan.

My two friends own a small business (music recording, Company "A") and are considering getting an SBA Loan (7a or 504, to be determined). Company A meets the criteria for a small business, as per SBA definitions.

Specifically, they're looking to purchase a residential home that has a recording studio built into the house. The plan is to create a LLC (Company "Z") that will use the proceeds of the SBA Loan to purchase the residential home/studio and then setup a Lease Agreement, where Company Z will lease the premise to Company A, with the rental income provided by Company A to Company Z being sufficient to service the debt commitment (I acknowledge each bank will have different debt service requirements). Company Z's 10% required equity for the purchase will be 20% from my two friends, and 80% from an outside investor(s). My two friends (who 100% own Company A and 10% of equity from Company Z) and I assume the outside investors, would all co-sign the SBA loan to Company "Z", if required.

My first question is this - can the above proposed setup be considered for a SBA loan? In this case, would the LLC, specifically created to be the borrower and hold the property, be considered a small business? Ultimately, it's the income from Company A (which is a small business by SBA definitions), which is in turn paid to Company Z as rental income, that would be the source of repayment of the SBA loan. I believe in this situation, Company Z is considered an Eligible Passive Company "EPC" and thus could be the borrower in this case?

My second question is this - from my review of 7a and 504 SBA loans, it appears that a 504 loan would be more beneficial in this case, given it's a real estate acquisition, rather than working capital funding, partner buyout, etc. However, I did read somewhere that a 504 SBA loan must create 1 job for every 50 or 100k of money lent? Is that correct?

01-01-2017, 10:22 PM
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03-01-2017, 03:01 AM
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04-03-2017, 12:05 PM
Your best bet would be to consult with your local SBA office and explain your situation. Keep in mind that the SBA is merely guaranteeing the loan and not actually issuing it, so the true onus lies with the lender, who may have their own criteria

12-22-2020, 10:13 AM
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