The Landlord Lien Subordination And Collateral Access Agreement is required to be executed during the loan closing process when an applicant receiving an SBA loan has secured an interest in real property through a commercial lease.

Parties to the agreement include the SBA Lender, who is referred to as the Lender, the SBA loan applicant, who is referred to as the Tenant and the Landlord who owns the premises occupied by the Tenant, who is referred to as the Landlord.

The purpose of this agreement is to solicit and confirm the Landlord's willingness to facilitate the loan by agreeing to subordinate its interest, if any, in the collateral, and permit Lender access to the collateral located at the premises in the event of Tenant default subject to the following terms and conditions.

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Contrary to popular opinion SBA Loans are quite flexible.  Case in point, The SBA Standby Creditor’s Agreement.

This Agreement establishes the interest rate and loan terms of a promissory note between the buyer, referred to as the Standby Borrower and the Seller, referred to as the Standby Creditor, to mitigate three fundamental credit weaknesses in the loan application.

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There are many instances where borrowers applying for an SBA loan to purchase real estate, acquire a business or franchise or obtain working capital for growth do not possess the required 10% minimum equity injection.

The good news is that the SBA permits the applicant to receive a monetary gift to assist with the equity injection.  This gift may be given by any willing participant.

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November 1st, 2018 the SBA combined SBA Form 159(7a) and SBA Form 159(504) into one form known simply as Form 159.

Form 159 requires applicants to disclose services and fees charged by an Agent hired in connection with applying for an SBA loan whether a 7(a) or 504.

The purpose of this form is threefold.

The applicant is required to complete the form after the loan has been approved.

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Form 2202 must be completed on behalf of the subject business requesting the loan and all affiliate businesses.

Affiliate businesses are defined by the SBA as any business owned 51% or more by a 20% or more owner of the subject business.

Form 2202 documents the subject business and affiliate businesses monthly debt obligations which is essential to determining the debt service coverage ratio or dscr for short and debt to tangible net worth ratio also known as leverage.

Both The dscr and debt to tangible net worth ratios are key indicators used by lenders to determine the businesses ability to repay the requested loan.

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Hello and welcome to the State of SBA Lending Address presented by yours truly, Ryan Smith, Principal and Founder of ThinkSBA.  I help business owners and entrepreneurs find the right loan to purchase real estate, acquire a business or franchise or  obtain working capital to grow or start their business.

State of SBA Lending Address Topics

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The SBA Statement of Personal History Form 912 must be completed by everyone who answers yes to questions 18 or 19 on SBA 7(a) Borrower Information Form 1919, Section II: Principal Information.

These questions ask whether the individual principal applying has been arrested within the last six months or whether they have EVER, I want to stress EVER, been convicted, pleaded guilty, pleaded nolo contendere, been placed on pretrial diversion or been placed on any form of parole or probation for any criminal offense other than a minor traffic violation. Just to be clear a DUI is not a minor traffic violation.

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The SBA 7(a) Borrower Information Form 1919 is required to be completed by every individual with 20% or more ownership in the applicant business entity whether applying for an SBA 7a or 504 loan.

Completing this form is not complicated but there are a few things that are important to know.

First, the form consists of 26 questions spanning two sections,  The first section pertains to the Applicant business and the second section to it’s individual principals or owners.

Before answering the questions, review the Definitions section on Page 1.  This section defines the terms Affiliation, Close Relative, Eligible Passive Company, Household Member and Operating Company. You’ll need to know these definitions to answer questions 5,6,7, 8, 12, 14, 15, 16, 21, 23, 24 and 25.

Once you’ve reviewed these definitions you’re ready to move forward to Section I: Applicant Business Information.

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The Personal Financial Statement, often referred to as a PFS for short, is one of the most important documents to the loan application.

The PFS must be completed by all individuals who own 20% or more of the borrowing entity and is to include all personal assets, liabilities, annual income and debt obligations. I want to stress personal financial information, not business. I will address what is necessary to properly document Business financial information in future episodes.

The PFS requires that all requested and relevant information be included. Leaving out details such as monthly rent, credit card obligations, home equity lines of credit and real estate owned will render the PFS incomplete and cause delays, or even worse, a mis-understanding of one or more of the business owners capacity to borrow, which can be the difference between a decline or approval.

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One of the most popular ways to become a business owner is to acquire an existing business.  And the easiest way to qualify for financing is through the SBA 7a program.

Before I highlight the advantages of the 7a program, I’d first like to raise the point that acquiring an existing business is not always the best route to becoming a business owner.  In some cases it makes better financial sense to start a new business rather than acquiring an existing one.

Here’s the test I like to apply.  If you’re able to start a new business with similar or less capital requirements, and ramp up revenue and profitability within two years from opening, it’s likely best to start a new business.

If this is not the case, you can confidently focus all your attention on finding the right business to acquire.

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