Because SBA Loans cannot be made to businesses engaged in speculation or investment in rental real estate.
Guess that is why the Mortgage plus expenses only applies.
ELIGIBLE BUSINESSES:
To be eligible, the business must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, the business qualifies as small if it does not have a tangible net worth in excess of $7 million and does not have an average net income in excess of $2.5 million after taxes for the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate.
We are one day from closing our sba 504 loan. They loan 40% of the purchase price, while a local bank loans 50% and we put in 10%.
The closing has been delayed because the SBA takes forever to get their documents together. We are supposed to close tomorrow and my lawyer has not been given the SBA loan docs for review and there is no settlement statement yet. But from what people are saying the loan costs are going to be higher than traditional loans. It would be nice for someone to let me know what the check is I need to write tomorrow.
The last minute item to come up was the fact that the SBA requires a 21 year lease and we are not allowed to make any money on the lease - the rent can only be the mortgage plus expenses.
I went over this program with the SBA on multiple occasion and searched the website. There is no reference to this lease issue. No one mentioned either of these items during any conversations with them.
Why would anyone buy a building and not plan to make any money on it and also commit to finding a tenant who is willing to sign a 21 year lease???
I would like to warn anyone considering this type of loan that it is probably not worth it.
Re: sba 504 loans aren’t as good as they sound - Posted by Don Dion
Posted by Don Dion on November 08, 2005 at 24:30:22:
Your second to last sentance has me wondering what your doing.
“Why would anyone buy a building and not plan to make any money on it and also commit to finding a tenant who is willing to sign a 21 year lease???”
With an SBA loan they are for owner occupants only not investment. I have scene the underwritters require a lease from a corp that lasts the term of the mortgage with terms similar to what your showing at a break even before. This is done so the owner occupant does not use business funds for other needs than to pay the mortgage first. If your not running a bus out of the building and renting it out to others you might find your loan being called early.