October 15, 2024 • 26 mins
Unlock the secrets of commercial lending tailored specifically for small business entrepreneurs with our expert guest, a seasoned local lender. Discover the crucial steps needed to secure a commercial loan, from registering your business to crafting a compelling business plan. We break down the nuances between residential and commercial lending, emphasizing the importance of a strong credit score and understanding unique pre-approval processes. Learn how SBA-preferred banks can be your allies in financing startup costs and real estate purchases, and get the lowdown on typical down payment requirements and loan structures.
We also tackle the complexities of securing an SBA loan, highlighting the critical due diligence required in real estate transactions. Our guest shares insights on gathering the necessary documentation and the significance of demonstrating liquidity, possibly through collateralizing loans with life insurance. For those in industries like restaurants and hotels or personal trainers eyeing property ownership, we offer tailored advice on showcasing business management skills and navigating heightened scrutiny. Tune in for invaluable guidance on making your entrepreneurial dreams a reality through strategic commercial lending.
Sarah Thress
614-893-5885
First Time Home Buyer course: https://sarahthress.graphy.com/
Instagram https://www.instagram.com/sarah_thress_realtor/
Facebook https://www.facebook.com/SarahThressRealtor/
https://www.youtube.com/@LIFEINCOLUMBUS
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Hi and welcome to this week's episode of Come to
Find Out.
This week I am really excitedto bring in a local lender that
specializes in commerciallending and because there are a
lot of nuances and rules andregulations around it, we are
not going to mention the bankthat she's with, but I can
(00:25):
assure you that she is veryknowledgeable and so if this is
something that you're interestedin, you always can reach out to
me.
But I have her on because, uh,because I adore her and I love
working with her.
But also I have several peoplethat will come to me and say,
hey, I really would like tostart a business, um, but I
(00:46):
don't know what to do aboutpurchasing a storefront or how
do I go about looking for this?
And, just like, in real estate,there are realtors that
specialize in commercial andthere are people that specialize
more in residential.
I specialize in residential, Idon't specialize in commercial,
(01:06):
but I have several colleaguesthat I know like and trust that
do commercial real estate.
And I say all of that to justsay that these are two separate
entities whenever it comes toresidential versus commercial.
And if you're interested in youknow kind of knowing the
differences, obviously you canlisten back to any of the other
podcasts that I've done beforewith residential lenders, but
(01:30):
again, this today is aboutcommercial lending, and if this
is something that you have beenwondering about, then you are in
the right spot.
So thank you so much forjoining us.
You're welcome, truly, trulyappreciate it.
Um, I would love for you tojust kind of walk us through,
like if someone reached out tome and said hey, I uh have a gym
that I've been, you know, I'vejust been renting space at a gym
(01:54):
, I'm a personal trainer and Iwant to now open my own space.
What would you, what would theprocess look like if someone
came to you with that type of ascenario?
Speaker 2 (02:26):
Yeah, so in that case it would.
With any bank that you go to,not necessarily the bank that I
work for you would go SBA,because you would go to the
Secretary of State to file aname to ensure that there isn't
that name already assigned tosomebody.
You would go to irsgov and youwould get your tax
identification number 10 is whatbanks call them it's bank lingo
for us or employeeidentification number EIN and
(02:49):
then you would proceed with abusiness plan and that you would
do at the sbagov, and sbagovgives you sample business plans
and the business plan consistsof marketing, demographics,
(03:12):
competition, projections.
Even so, you would project yourfirst three years typically is
what banks are requiring, or Ishould say SBA lending is
requiring, and you would putthat all into your business plan
.
On your pricing for the gym so,for instance, if you're going
(03:37):
to have personal training, ifyou're going to have group
sessions, all of that needs tobe included in there.
Your projections are going toinclude so you want to have a
space in mind are going toinclude your utilities, so
you'll want to put all of thatinto your projections as well
Once you've completed yourbusiness plan and you have a
(04:02):
place in mind and you have yourTIN or tax identification number
and name in place, you want tostart looking for a bank to work
with.
My bank in particular is SBAPreferred.
We do a lot of SBA lending andtypically it is startup, but we
(04:27):
do also real estate lending onthe SBA side, but we can do that
in combination.
So if you're starting abusiness and you're also buying
the real estate with it, we cando that together.
We can include your workingcapital, which would be startup
costs.
It'll include your payroll,it'll include your mortgage or
(05:03):
lease for that first severalyears so that we can get you
started up and running.
Typically, sba is 10% down, butthere are certain instances and
I'm not specialized in SBA, butI do know a little bit just to
make me dangerous but what Iwould say is there are certain
instances or certain industriesthat would cause it to be a
(05:23):
special circumstance.
So we say, say as me, as acommercial lender not
specializing in SBA inparticular, I would tell
somebody that is looking to do astartup that the down payment
or equity injection, as we callit, equity injection, as we call
(05:43):
it it would vary from 10% to25%.
Oh, wow, just depending on theindustry that you're in, yeah,
okay.
And you know you want your FICOscore, your credit score, to be
in place before you come to usand typically banks are right
around the 670 and above on theFICO score.
(06:05):
So you want that.
You don't want to sign a leaseor a contract before you have
pre-qualified sort of.
So the difference betweenresidential and commercial is we
don't do a pre-approval.
Speaker 1 (06:23):
Oh, okay.
Speaker 2 (06:24):
No, we will give you a letter of interest which means
this is our structure.
This is the amount that youtold us you're looking for.
We've cash flowed you to acertain extent, but we can't
pre-approve you.
We can't even say it's apre-qualified.
(06:44):
We've taken a look ateverything and given you a
letter of it.
We like your concept.
We looked at your business plan.
We like what you're trying todo and here is our loan
structure.
Basically and the loan structureis, at least at my bank is
five-year term and a 25-yearamortization.
(07:05):
So that's the typical, I shouldsay.
So.
If you're getting intoinvestments it's a lot different
, but as far as anything realestate it would be a five-year,
25-year amortization on theconventional side.
Sba side is a little bitdifferent.
(07:27):
Sometimes you could do 25-yearterm.
It just depends on what you'relooking to do.
If you're looking to fix yourrate or have a variable, the
term is going to change and thenthe prepayment penalty will
change on the SBA side too andI'm not up to all of the
regulations on the SBA side, butI do know that piece of it.
(07:58):
And then on the conventionalside, like I said, it's
five-year-day pre-look at apre-approval, because we've
already opened that loan and hadit in place for four years,
four and a half, seven years, so90 days prior to maturity.
(08:18):
We're taking a look at it toensure do we want to do this
again?
And then we start the renewalprocess.
We don't want you to get into apurchase contract before, prior
to even looking at homes, right, but it makes more sense and
(08:53):
you can say, contingent upongetting financing, of course, so
it doesn't get you into trouble, but it does, on the realtor
side, tend to be upsettingbecause then if they don't get
the financing and they were youknow if we could do a
pre-qualification or apre-approval, it would make more
(09:13):
sense for you guys.
But it is what it is.
On the commercial side, yeah,and it is a different vehicle,
um, so now our um economy iscalling for us to um to collect
appraisal costs upfront.
So even before we get anapproval, we're getting those uh
(09:38):
appraisal costs um upfront, andif there's an environmental
that is in need, then thatenvironmental cost is also
collected.
The nice thing about my bank isa lot of the banks out there
are charging a bank fee, um, andwe just charge a hundred dollar
(10:04):
bank fee.
Wow, um, and everything else isout of pocket.
It's normal expenses yourappraisal, the environmental
title work, that's all what wecall normal out of pocket
expenses.
Um, title work is included inyour settlement costs, so that
can be at closing, obviously,because we don't know what
(10:27):
that's going to include, right,yeah, um, but we have been
collecting appraisal costsupfront and I think a lot of
banks are probably doing that.
Speaker 1 (10:37):
Um yeah, well, I think that's so great and I love
that you kind of walked usthrough that process, because
you are correct.
Like I, you know, because I'mnot in the commercial world I
would be like, well, yeah, weneed a pre-approval and then
we'll set up a search and thenwe'll do that and it's.
It's almost the completeopposite instead with commercial
.
You know, if someone's thinkingabout purchasing something you
(10:59):
know starting a business or youknow whatever they would want to
go find the, the piece of landor the, you know the parcel of
the building, whatever it isthat they're looking for that's
going to fit their needs.
They're going to find thatfirst and then come to the
lender to see if it's going tomake it work, and I have to
imagine that this then makes theentire process much longer than
(11:24):
it is for purchasing a home.
Speaker 2 (11:26):
Yeah, that is.
Another piece of the differencebetween residential and
commercial is the fact that itcould take 45 to 60 days for
closing on our end.
And I frequently get realtorswho typically do residential but
have clients who they've dealtwith in the past sold their home
(11:49):
and then they're looking forcommercial real estate for some
particular reason their business.
Obviously, people have otherlives other than just their
homes right Right.
Um, and they're looking topurchase real estate for their
businesses, um, and thatcompletely makes sense to me.
The trouble is theunderstanding of it.
(12:11):
It's not just an overnightprocess.
It's not 30 days.
We can't close in 30 days.
There's due diligence on ourend, especially when it comes to
real estate.
We uh, I have a piece ofproperty I'm working on right
now.
It's got a well, it's got aboveground propane tanks used for
heating.
So there were extra steps.
(12:34):
Due diligence on our end thatneeds to happen.
Questionnaires, uh,environmentals, uh, it, it, it
is more that goes into it andyou think, oh, we'll just
collect everything from theclient and get it.
It is a little more difficultand I think you probably can can
, um, understand that orempathize with that is you can
(12:57):
ask all you want, but peoplehave lives.
They're working full-time jobs,you know, and or running
businesses and have kids andthey've got sports and they're
running around.
You get it.
Speaker 1 (13:08):
I get it.
Speaker 2 (13:09):
And so collecting things isn't as easy as you
think it is.
So even from the beginning,we're collecting three years
personal financial statements,so tax returns, and then three
years business tax returns, andthen, if it's a startup, it's
the business plan.
So someone comes into you andthey want to buy their own gym.
(13:31):
It's not that easy.
You've got to develop thisbusiness plan and it's extensive
.
There's a lot of detail thatgoes into this.
You can't just throw a businessplan together in two days.
It's not going to happen.
No.
Speaker 1 (13:44):
I mean you can, but it's not going to be a very good
one.
That's exactly it.
Speaker 2 (13:47):
It's not going to be well thought out and you know,
it's just yeah, and here'sanother important piece on the
SBA side, and this is a SBAregulation.
Basically, the first thingthey're going to ask you is so
let's just say, you went toschool for psychology and you
(14:08):
were a psychologist and you didthat, but now you want to own a
pharmacy.
Speaker 1 (14:16):
I don't know.
Speaker 2 (14:17):
Let's just say you want to own a pharmacy.
Well, what experience do youhave?
That's going to be the firstquestion that that lender who
does SBA is going to ask you.
And that's the first questionthe SBA underwriters are going
to ask what kind of experiencesdoes this person have, what kind
of qualifications do they haveto run?
Number one run their ownbusiness.
(14:37):
And number two she was apsychologist, now she wants to
be a pharmacist and run abusiness Right, so there's some
logistics behind it that need tobe there.
So a resume goes into yourbusiness plan.
Speaker 1 (14:52):
Wow.
Speaker 2 (14:54):
Um, so your resume needs to be beefed up If you
really want to do this pharmacy.
What experience do you have, um, as a pharmacist to start
owning your business?
What?
What qualifications do you haveto manage a business with
people employees and pay them,and know that piece of it and
(15:19):
make growth to ensure that yoube able to pay back this SBA
loan?
Speaker 1 (15:26):
Right, well, and it makes sense.
And I love that there is thatmuch due diligence, because I
have to believe that you knowsomeone probably, uh, jumped
into something and that's why wehave these regulations.
You know, it's just like every,every regulation we have, or
every step we have, is based offof something that we've learned
from, you know, things notworking out in the past.
(15:48):
So you know someone saying like, hey, I want to be a pharmacist
, and it used to be like, ohsure, that's such a great idea
and here's your money.
So it's much better now that wehave those regulations, so I
love that, and I would havenever known that you had to have
your resume in there along withyour business plan.
Speaker 2 (16:06):
A lot of people don't .
And then the second piece isthat you have some liquidity
even after your equity injection.
Your down payment quote,unquote, right.
So we want to see that there isstability behind that guarantor
.
So whoever's going to beguaranteeing that loan needs to
have some liquidity.
(16:26):
It can't just be, and sometimesthey're going to want you to
collateralize it.
Sba does this quite often withstartups, and that is, they'll
want you to collateralize theloan with some life insurance.
Speaker 1 (16:43):
Oh, wow.
Speaker 2 (16:44):
So, let's say, the life insurance is I'm sorry, the
loan that you're requesting isabout $ 800,000.
Yeah, they would want to seeyou have about 800,000 in life
insurance.
Um, so, and and the SBA is veryknown to over collateralize, so
(17:06):
even though they have your lifeinsurance for $800,000, we're
not guaranteed to get that$800,000 back right.
So they're going to look atyour home.
They're going to look atcollateralizing in other ways as
well, because it is high riskto start a business.
(17:28):
Yeah, because it is high riskto start a business.
Yeah, it is high risk to startany business, let alone the high
risk industries that are outthere, like restaurants and
hotels, that SBA doesn'tnecessarily really like.
Speaker 1 (17:40):
Yeah, well, probably because it's such an
oversaturated market with such ahigh percentage of failure, and
I mean I hate to say that word,but they, you know, there just
is, and so I think that, youknow, makes perfect sense.
Yeah, yeah, I love it.
So, basically, um, if someoneis like, hey, you know, let's
(18:08):
just go back to the personaltrainer, um, example, so, hey,
I'm a personal trainer, I havebeen renting space, now I want
to purchase something.
So the steps would be to, youknow, go onto the websites that
you mentioned and to fill outthe forms to create a business
plan.
Make sure that their resume is,you know, up to date and solid,
to show, hey, I've owned abusiness before, or at least
(18:31):
I've been a personal trainer forthis long and I've rented for
this long, and whatever it isthat's going to show the bank.
Speaker 2 (18:37):
If they've managed other employees that's important
If they've done accounting ofsome sorts in college or
whatever it was.
But running a business is noteasy.
No, by any means.
And so that's why and SBA isbacking this loan along with you
(18:58):
yeah, they want to see that youhave some skin in the game, but
they also don't want to justlend money to somebody just
because yeah, yeah, so yeah,absolutely, Well, I love that.
Speaker 1 (19:10):
And then they would come to you or any you know
commercial lender and they would, uh, you know, say here's all
the stuff, here's the propertythat I'm interested in, and
that's whenever everything wouldstart with the process of
seeing if you could evenfinancially make it work.
Speaker 2 (19:30):
Yeah, now, sba, I know I mentioned our bank fee is
only a hundred, but on the SBAside it's different.
It's way different.
Conventional lending is ahundred.
I know a lot of community banksdo like a 2% of whatever the
loan amount is, or somethinglike that for their bank fee,
(19:51):
which is it can be pretty hefty,right, and so, no matter what
our loan amount is, that's justa hundred dollar flat fee.
Sba, depending on what you do.
Variable fixed 25-year termwith 20, it just depends.
There are going to be some costsin there and this is important
(20:13):
to know.
On the conventional side, theinterest rates are lower than
what, at least right now, thanwhat, right, at least right now.
Then, lower than what the SBAis currently offering.
Oh, okay, um, and it'simportant to know that the rates
are dropping and I thinkthey're going to drop again, um,
closer to the end of the year.
(20:33):
Yeah, um, and I mean, at leastyou know that's what we're all
hearing, right, right, but, um,the important thing is you know
we're quoting rates in the midfives right now, um, for
commercial lending and that'sit's the.
The interest rates are differentthan on the residential side.
(20:55):
Um, there are times where itcan be completely different.
Like commercial lending, uhrates can be higher than on the
residential side typically, butthey'll vary, and my rates will
vary day to day, because we arelooking at the US Treasury for
(21:16):
our rates and we utilize our ownpersonal cost of funds in-house
and we utilize our own personalcost of funds in-house.
The other important thing onthe SBA side is that the bank
that I work for holds on totheir SBA loans.
They do not sell them.
A lot of banks do, yeah, eventhough they say they're a
(21:38):
preferred bank, sba lender, andthey are, don't get me wrong,
that holds onto them and yeah,so that's important to some
people because you know it'sbeing serviced by us.
The same person that took yourloan application is the same
(22:00):
person that you can go back towhen it's renewing's renewing or
if you want to, um, sell thebuilding and, uh, pay it off, um
, so those questions can all berelayed back to the same person
that you dealt with initially.
Speaker 1 (22:12):
Yeah, yeah, I love that and I really appreciate you
, you know, just kind of walkingus through that, giving more
information, because I thinkthat people you know that are
going through this for the veryfirst time there, you know,
maybe they have purchased a homein the past and so you know
they're used to that process oflike, getting the pre-approval
(22:32):
and all of that.
So I love that you kind ofwalked us through that because,
especially if someone is new tothis, there's going to be so
much information that you knowthat they need and so many
different pieces of uh, you know, pieces and parts that they
need to bring together to makethis work.
So, thank you.
Speaker 2 (22:48):
And then there are several different uh companies
out there that do small business, uh lending um or advice on how
to start.
But you can always come to me.
I don't have any problems withthat but there are several
different companies out there,um, and right now they're not
(23:11):
coming to my head, but I know ofone, it's ECDI and they do um
help small businesses getstarted with their for a price,
obviously, but they help themwith their business plan if
they're looking to start abusiness, and help them get
everything in order, if there isany and they do some lending
(23:35):
there too.
Even though they help assist abusiness who is starting a
business, um, they can um do thelending there or take their
package and go to a bank oftheir preference and do it,
depending on on the size of loan.
Speaker 1 (23:56):
Yeah, I love that.
I love that.
Well, thank you so much.
As we mentioned in thebeginning of this episode,
because of rules, regulationsand all of that, we couldn't
actually mention the bank andher name and all of that.
But if you are listening tothis and you are interested in a
(24:19):
commercial loan of some sort,please reach out and I will
connect you with this lovelylender and you can ask all of
your questions.
So, thank you so much fortaking time out of your day to
educate us.
This was all such valuableinformation and I love that it
was really explained in a waythat anyone uh anyone can
(24:43):
understand it.
You didn't use a lot of likeyou know uh lingo in the you
know like, um, some people willuse all of the industry lingo
and it's like, okay, you're nottalking to you know people you
work with.
You're talking to people thatdon't live in this world.
So I really appreciate that.
Thank you Absolutely Well,thank you so much for tuning in.
(25:03):
Please make sure that you leavea review, because feedback is
the greatest gift that you cangive me.
Please make sure you aresharing this, because that is
the greatest compliment that youcan give me and, um, you know
my special guest here.
And also make sure that you arefollowing along so you never
miss another episode.
Thanks so much and we'll seeyou next time on.
(25:24):
Come to find out.
Hi and welcome to this week's episode of Come to
Find Out.
This week I am really excitedto bring in a local lender that
specializes in commerciallending and because there are a
lot of nuances and rules andregulations around it, we are
not going to mention the bankthat she's with, but I can
(00:25):
assure you that she is veryknowledgeable and so if this is
something that you're interestedin, you always can reach out to
me.
But I have her on because, uh,because I adore her and I love
working with her.
But also I have several peoplethat will come to me and say,
hey, I really would like tostart a business, um, but I
(00:46):
don't know what to do aboutpurchasing a storefront or how
do I go about looking for this?
And, just like, in real estate,there are realtors that
specialize in commercial andthere are people that specialize
more in residential.
I specialize in residential, Idon't specialize in commercial,
(01:06):
but I have several colleaguesthat I know like and trust that
do commercial real estate.
And I say all of that to justsay that these are two separate
entities whenever it comes toresidential versus commercial.
And if you're interested in youknow kind of knowing the
differences, obviously you canlisten back to any of the other
podcasts that I've done beforewith residential lenders, but
(01:30):
again, this today is aboutcommercial lending, and if this
is something that you have beenwondering about, then you are in
the right spot.
So thank you so much forjoining us.
You're welcome, truly, trulyappreciate it.
Um, I would love for you tojust kind of walk us through,
like if someone reached out tome and said hey, I uh have a gym
that I've been, you know, I'vejust been renting space at a gym
(01:54):
, I'm a personal trainer and Iwant to now open my own space.
What would you, what would theprocess look like if someone
came to you with that type of ascenario?
Speaker 2 (02:26):
Yeah, so in that case it would.
With any bank that you go to,not necessarily the bank that I
work for you would go SBA,because you would go to the
Secretary of State to file aname to ensure that there isn't
that name already assigned tosomebody.
You would go to irsgov and youwould get your tax
identification number 10 is whatbanks call them it's bank lingo
for us or employeeidentification number EIN and
(02:49):
then you would proceed with abusiness plan and that you would
do at the sbagov, and sbagovgives you sample business plans
and the business plan consistsof marketing, demographics,
(03:12):
competition, projections.
Even so, you would project yourfirst three years typically is
what banks are requiring, or Ishould say SBA lending is
requiring, and you would putthat all into your business plan
.
On your pricing for the gym so,for instance, if you're going
(03:37):
to have personal training, ifyou're going to have group
sessions, all of that needs tobe included in there.
Your projections are going toinclude so you want to have a
space in mind are going toinclude your utilities, so
you'll want to put all of thatinto your projections as well
Once you've completed yourbusiness plan and you have a
(04:02):
place in mind and you have yourTIN or tax identification number
and name in place, you want tostart looking for a bank to work
with.
My bank in particular is SBAPreferred.
We do a lot of SBA lending andtypically it is startup, but we
(04:27):
do also real estate lending onthe SBA side, but we can do that
in combination.
So if you're starting abusiness and you're also buying
the real estate with it, we cando that together.
We can include your workingcapital, which would be startup
costs.
It'll include your payroll,it'll include your mortgage or
(05:03):
lease for that first severalyears so that we can get you
started up and running.
Typically, sba is 10% down, butthere are certain instances and
I'm not specialized in SBA, butI do know a little bit just to
make me dangerous but what Iwould say is there are certain
instances or certain industriesthat would cause it to be a
(05:23):
special circumstance.
So we say, say as me, as acommercial lender not
specializing in SBA inparticular, I would tell
somebody that is looking to do astartup that the down payment
or equity injection, as we callit, equity injection, as we call
(05:43):
it it would vary from 10% to25%.
Oh, wow, just depending on theindustry that you're in, yeah,
okay.
And you know you want your FICOscore, your credit score, to be
in place before you come to usand typically banks are right
around the 670 and above on theFICO score.
(06:05):
So you want that.
You don't want to sign a leaseor a contract before you have
pre-qualified sort of.
So the difference betweenresidential and commercial is we
don't do a pre-approval.
Speaker 1 (06:23):
Oh, okay.
Speaker 2 (06:24):
No, we will give you a letter of interest which means
this is our structure.
This is the amount that youtold us you're looking for.
We've cash flowed you to acertain extent, but we can't
pre-approve you.
We can't even say it's apre-qualified.
(06:44):
We've taken a look ateverything and given you a
letter of it.
We like your concept.
We looked at your business plan.
We like what you're trying todo and here is our loan
structure.
Basically and the loan structureis, at least at my bank is
five-year term and a 25-yearamortization.
(07:05):
So that's the typical, I shouldsay.
So.
If you're getting intoinvestments it's a lot different
, but as far as anything realestate it would be a five-year,
25-year amortization on theconventional side.
Sba side is a little bitdifferent.
(07:27):
Sometimes you could do 25-yearterm.
It just depends on what you'relooking to do.
If you're looking to fix yourrate or have a variable, the
term is going to change and thenthe prepayment penalty will
change on the SBA side too andI'm not up to all of the
regulations on the SBA side, butI do know that piece of it.
(07:58):
And then on the conventionalside, like I said, it's
five-year-day pre-look at apre-approval, because we've
already opened that loan and hadit in place for four years,
four and a half, seven years, so90 days prior to maturity.
(08:18):
We're taking a look at it toensure do we want to do this
again?
And then we start the renewalprocess.
We don't want you to get into apurchase contract before, prior
to even looking at homes, right, but it makes more sense and
(08:53):
you can say, contingent upongetting financing, of course, so
it doesn't get you into trouble, but it does, on the realtor
side, tend to be upsettingbecause then if they don't get
the financing and they were youknow if we could do a
pre-qualification or apre-approval, it would make more
(09:13):
sense for you guys.
But it is what it is.
On the commercial side, yeah,and it is a different vehicle,
um, so now our um economy iscalling for us to um to collect
appraisal costs upfront.
So even before we get anapproval, we're getting those uh
(09:38):
appraisal costs um upfront, andif there's an environmental
that is in need, then thatenvironmental cost is also
collected.
The nice thing about my bank isa lot of the banks out there
are charging a bank fee, um, andwe just charge a hundred dollar
(10:04):
bank fee.
Wow, um, and everything else isout of pocket.
It's normal expenses yourappraisal, the environmental
title work, that's all what wecall normal out of pocket
expenses.
Um, title work is included inyour settlement costs, so that
can be at closing, obviously,because we don't know what
(10:27):
that's going to include, right,yeah, um, but we have been
collecting appraisal costsupfront and I think a lot of
banks are probably doing that.
Speaker 1 (10:37):
Um yeah, well, I think that's so great and I love
that you kind of walked usthrough that process, because
you are correct.
Like I, you know, because I'mnot in the commercial world I
would be like, well, yeah, weneed a pre-approval and then
we'll set up a search and thenwe'll do that and it's.
It's almost the completeopposite instead with commercial
.
You know, if someone's thinkingabout purchasing something you
(10:59):
know starting a business or youknow whatever they would want to
go find the, the piece of landor the, you know the parcel of
the building, whatever it isthat they're looking for that's
going to fit their needs.
They're going to find thatfirst and then come to the
lender to see if it's going tomake it work, and I have to
imagine that this then makes theentire process much longer than
(11:24):
it is for purchasing a home.
Speaker 2 (11:26):
Yeah, that is.
Another piece of the differencebetween residential and
commercial is the fact that itcould take 45 to 60 days for
closing on our end.
And I frequently get realtorswho typically do residential but
have clients who they've dealtwith in the past sold their home
(11:49):
and then they're looking forcommercial real estate for some
particular reason their business.
Obviously, people have otherlives other than just their
homes right Right.
Um, and they're looking topurchase real estate for their
businesses, um, and thatcompletely makes sense to me.
The trouble is theunderstanding of it.
(12:11):
It's not just an overnightprocess.
It's not 30 days.
We can't close in 30 days.
There's due diligence on ourend, especially when it comes to
real estate.
We uh, I have a piece ofproperty I'm working on right
now.
It's got a well, it's got aboveground propane tanks used for
heating.
So there were extra steps.
(12:34):
Due diligence on our end thatneeds to happen.
Questionnaires, uh,environmentals, uh, it, it, it
is more that goes into it andyou think, oh, we'll just
collect everything from theclient and get it.
It is a little more difficultand I think you probably can can
, um, understand that orempathize with that is you can
(12:57):
ask all you want, but peoplehave lives.
They're working full-time jobs,you know, and or running
businesses and have kids andthey've got sports and they're
running around.
You get it.
Speaker 1 (13:08):
I get it.
Speaker 2 (13:09):
And so collecting things isn't as easy as you
think it is.
So even from the beginning,we're collecting three years
personal financial statements,so tax returns, and then three
years business tax returns, andthen, if it's a startup, it's
the business plan.
So someone comes into you andthey want to buy their own gym.
(13:31):
It's not that easy.
You've got to develop thisbusiness plan and it's extensive
.
There's a lot of detail thatgoes into this.
You can't just throw a businessplan together in two days.
It's not going to happen.
No.
Speaker 1 (13:44):
I mean you can, but it's not going to be a very good
one.
That's exactly it.
Speaker 2 (13:47):
It's not going to be well thought out and you know,
it's just yeah, and here'sanother important piece on the
SBA side, and this is a SBAregulation.
Basically, the first thingthey're going to ask you is so
let's just say, you went toschool for psychology and you
(14:08):
were a psychologist and you didthat, but now you want to own a
pharmacy.
Speaker 1 (14:16):
I don't know.
Speaker 2 (14:17):
Let's just say you want to own a pharmacy.
Well, what experience do youhave?
That's going to be the firstquestion that that lender who
does SBA is going to ask you.
And that's the first questionthe SBA underwriters are going
to ask what kind of experiencesdoes this person have, what kind
of qualifications do they haveto run?
Number one run their ownbusiness.
(14:37):
And number two she was apsychologist, now she wants to
be a pharmacist and run abusiness Right, so there's some
logistics behind it that need tobe there.
So a resume goes into yourbusiness plan.
Speaker 1 (14:52):
Wow.
Speaker 2 (14:54):
Um, so your resume needs to be beefed up If you
really want to do this pharmacy.
What experience do you have, um, as a pharmacist to start
owning your business?
What?
What qualifications do you haveto manage a business with
people employees and pay them,and know that piece of it and
(15:19):
make growth to ensure that yoube able to pay back this SBA
loan?
Speaker 1 (15:26):
Right, well, and it makes sense.
And I love that there is thatmuch due diligence, because I
have to believe that you knowsomeone probably, uh, jumped
into something and that's why wehave these regulations.
You know, it's just like every,every regulation we have, or
every step we have, is based offof something that we've learned
from, you know, things notworking out in the past.
(15:48):
So you know someone saying like, hey, I want to be a pharmacist
, and it used to be like, ohsure, that's such a great idea
and here's your money.
So it's much better now that wehave those regulations, so I
love that, and I would havenever known that you had to have
your resume in there along withyour business plan.
Speaker 2 (16:06):
A lot of people don't .
And then the second piece isthat you have some liquidity
even after your equity injection.
Your down payment quote,unquote, right.
So we want to see that there isstability behind that guarantor
.
So whoever's going to beguaranteeing that loan needs to
have some liquidity.
(16:26):
It can't just be, and sometimesthey're going to want you to
collateralize it.
Sba does this quite often withstartups, and that is, they'll
want you to collateralize theloan with some life insurance.
Speaker 1 (16:43):
Oh, wow.
Speaker 2 (16:44):
So, let's say, the life insurance is I'm sorry, the
loan that you're requesting isabout $ 800,000.
Yeah, they would want to seeyou have about 800,000 in life
insurance.
Um, so, and and the SBA is veryknown to over collateralize, so
(17:06):
even though they have your lifeinsurance for $800,000, we're
not guaranteed to get that$800,000 back right.
So they're going to look atyour home.
They're going to look atcollateralizing in other ways as
well, because it is high riskto start a business.
(17:28):
Yeah, because it is high riskto start a business.
Yeah, it is high risk to startany business, let alone the high
risk industries that are outthere, like restaurants and
hotels, that SBA doesn'tnecessarily really like.
Speaker 1 (17:40):
Yeah, well, probably because it's such an
oversaturated market with such ahigh percentage of failure, and
I mean I hate to say that word,but they, you know, there just
is, and so I think that, youknow, makes perfect sense.
Yeah, yeah, I love it.
So, basically, um, if someoneis like, hey, you know, let's
(18:08):
just go back to the personaltrainer, um, example, so, hey,
I'm a personal trainer, I havebeen renting space, now I want
to purchase something.
So the steps would be to, youknow, go onto the websites that
you mentioned and to fill outthe forms to create a business
plan.
Make sure that their resume is,you know, up to date and solid,
to show, hey, I've owned abusiness before, or at least
(18:31):
I've been a personal trainer forthis long and I've rented for
this long, and whatever it isthat's going to show the bank.
Speaker 2 (18:37):
If they've managed other employees that's important
If they've done accounting ofsome sorts in college or
whatever it was.
But running a business is noteasy.
No, by any means.
And so that's why and SBA isbacking this loan along with you
(18:58):
yeah, they want to see that youhave some skin in the game, but
they also don't want to justlend money to somebody just
because yeah, yeah, so yeah,absolutely, Well, I love that.
Speaker 1 (19:10):
And then they would come to you or any you know
commercial lender and they would, uh, you know, say here's all
the stuff, here's the propertythat I'm interested in, and
that's whenever everything wouldstart with the process of
seeing if you could evenfinancially make it work.
Speaker 2 (19:30):
Yeah, now, sba, I know I mentioned our bank fee is
only a hundred, but on the SBAside it's different.
It's way different.
Conventional lending is ahundred.
I know a lot of community banksdo like a 2% of whatever the
loan amount is, or somethinglike that for their bank fee,
(19:51):
which is it can be pretty hefty,right, and so, no matter what
our loan amount is, that's justa hundred dollar flat fee.
Sba, depending on what you do.
Variable fixed 25-year termwith 20, it just depends.
There are going to be some costsin there and this is important
(20:13):
to know.
On the conventional side, theinterest rates are lower than
what, at least right now, thanwhat, right, at least right now.
Then, lower than what the SBAis currently offering.
Oh, okay, um, and it'simportant to know that the rates
are dropping and I thinkthey're going to drop again, um,
closer to the end of the year.
(20:33):
Yeah, um, and I mean, at leastyou know that's what we're all
hearing, right, right, but, um,the important thing is you know
we're quoting rates in the midfives right now, um, for
commercial lending and that'sit's the.
The interest rates are differentthan on the residential side.
(20:55):
Um, there are times where itcan be completely different.
Like commercial lending, uhrates can be higher than on the
residential side typically, butthey'll vary, and my rates will
vary day to day, because we arelooking at the US Treasury for
(21:16):
our rates and we utilize our ownpersonal cost of funds in-house
and we utilize our own personalcost of funds in-house.
The other important thing onthe SBA side is that the bank
that I work for holds on totheir SBA loans.
They do not sell them.
A lot of banks do, yeah, eventhough they say they're a
(21:38):
preferred bank, sba lender, andthey are, don't get me wrong,
that holds onto them and yeah,so that's important to some
people because you know it'sbeing serviced by us.
The same person that took yourloan application is the same
(22:00):
person that you can go back towhen it's renewing's renewing or
if you want to, um, sell thebuilding and, uh, pay it off, um
, so those questions can all berelayed back to the same person
that you dealt with initially.
Speaker 1 (22:12):
Yeah, yeah, I love that and I really appreciate you
, you know, just kind of walkingus through that, giving more
information, because I thinkthat people you know that are
going through this for the veryfirst time there, you know,
maybe they have purchased a homein the past and so you know
they're used to that process oflike, getting the pre-approval
(22:32):
and all of that.
So I love that you kind ofwalked us through that because,
especially if someone is new tothis, there's going to be so
much information that you knowthat they need and so many
different pieces of uh, you know, pieces and parts that they
need to bring together to makethis work.
So, thank you.
Speaker 2 (22:48):
And then there are several different uh companies
out there that do small business, uh lending um or advice on how
to start.
But you can always come to me.
I don't have any problems withthat but there are several
different companies out there,um, and right now they're not
(23:11):
coming to my head, but I know ofone, it's ECDI and they do um
help small businesses getstarted with their for a price,
obviously, but they help themwith their business plan if
they're looking to start abusiness, and help them get
everything in order, if there isany and they do some lending
(23:35):
there too.
Even though they help assist abusiness who is starting a
business, um, they can um do thelending there or take their
package and go to a bank oftheir preference and do it,
depending on on the size of loan.
Speaker 1 (23:56):
Yeah, I love that.
I love that.
Well, thank you so much.
As we mentioned in thebeginning of this episode,
because of rules, regulationsand all of that, we couldn't
actually mention the bank andher name and all of that.
But if you are listening tothis and you are interested in a
(24:19):
commercial loan of some sort,please reach out and I will
connect you with this lovelylender and you can ask all of
your questions.
So, thank you so much fortaking time out of your day to
educate us.
This was all such valuableinformation and I love that it
was really explained in a waythat anyone uh anyone can
(24:43):
understand it.
You didn't use a lot of likeyou know uh lingo in the you
know like, um, some people willuse all of the industry lingo
and it's like, okay, you're nottalking to you know people you
work with.
You're talking to people thatdon't live in this world.
So I really appreciate that.
Thank you Absolutely Well,thank you so much for tuning in.
(25:03):
Please make sure that you leavea review, because feedback is
the greatest gift that you cangive me.
Please make sure you aresharing this, because that is
the greatest compliment that youcan give me and, um, you know
my special guest here.
And also make sure that you arefollowing along so you never
miss another episode.
Thanks so much and we'll seeyou next time on.
(25:24):
Come to find out.
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