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?
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Structuring a potential SBA Loan??? Not sure how this is done – 12-12-2016,12:33 PM
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