October 20, 2020 • 8 mins
Today Michael is joined by Alan Nickelsen, Executive VP and Commercial Banking Manager of Synovus Bank in Pensacola, FL.
Alan shares the challenges that restaurants face to receive loans for building out and purchasing equipment for spaces that they lease. He shares which loans typically work for this type of restaurant owner, and what you can expect during the loan application process.
Episode Highlights:
- SBA loans are government-backed loans that can help restaurant owners who lease their restaurant spaces and need funding for equipment or building out their restaurant.
- Talk to your lender about an SBA 7a loan
- Since SBA loans are government-related loans the process can take time, so patience is key to being successful in getting the funding you need.
- Finding a trusted lender can help you navigate the process and assist in helping you keep up with the necessary deadlines.
For more information on The Restaurant Realty in 10 or to get the show notes from today's show head over to TheRestaurantRealty.com
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Michael Carro (00:01):
Welcome to The Restaurant Realty in 10. Ten
minutes of uncensored straighttalk for restaurant
entrepreneurs. Weekly TheRestaurant Realty in 10 dives
into restaurant operations,facilities, real estate, and
investments. Welcome to TheRestaurant Realty in 10. I'm
excited to have Alan Nickelsenwith Synovus Bank back to talk
about restaurant loans. Alanwrote several loans for me on
(00:21):
buildings that we have inDowntown Pensacola, including
the latest one, which was TheGarden at Palafox and Main,
along with a building we havethat has Ruby Slipper from New
Orleans. So Alan, welcome backto the program.
Alan Nickelsen (00:33):
Thank you very much happy to be here.
Michael Carro (00:35):
Well, we're excited to have you as well
since lending is so important toour clients. And specifically
today, we want to focus on thoseclients that are leasing space,
it's a little bit morechallenging to get loans because
of the lack of collateral. So ifI have a client that's going to
lease a space that needs to dosome building improvements, some
(00:57):
build out and then wrap in maybean equipment loan.How would they
go about that?
Alan Nickelsen (01:03):
Yeah, you're exactly right. Those are
probably one of the morechallenging ones we've got. The
restaurant industry itself ischallenging at times. We've got
COVID-19 issues out there andeverything else for the modern
day examples. But yes, from aleasing standpoint, we do kind
of lack collateral in thosesituations, that equipment etc,
which is some hard collateral,but oftentimes, the so called
(01:24):
"build out" is not really ableto be collateralized. We can't
take the property, we don't havebrick and mortar. Because of
that it makes it harder. And sothere's really, I would say
there's a couple of options. Andoftentimes you hear a lot in
lending. It depends. We say thata lot is a lender,
unfortunately, but it does. Itdepends. The reason I say that
is sometimes you have a borroweror a guarantor, who has the
(01:47):
wherewithal to maybe have somesignificant strength behind them
where they maybe personally canqualify for some so called
unsecured lending. And if theyguarantee the debt, therefore
you might be able to get someconventional financing that way.
That's probably a rare example.
So oftentimes, in thissituation, we're looking at an
SBA loan to the governmentbacked loan, and typically look
at a 7a loan, not a 504 but a 7aloan is able to finance what
(02:08):
were the call the blue sky, thegoodwill, airball, there's
certain words you use for it,but that's probably the route
you're gonna go down in thatexam.
Michael Carro (02:18):
So let's say I sign a lease, does the lease
term matter whether it's fiveyears? Seven years? 10 years? 20
years?
Alan Nickelsen (02:24):
Good question.
Yes, it does. So on an SBA 7aloan, we're able to go 10 years
on financing for that. So youcan have a 10 year commitment.
However, to your point, the termof the lease needs to match the
term of the loan. So that term,that lease would need to be 10
years.
Michael Carro (02:37):
Okay? So and that's also going to help out
your amortization. By the way, Ialways tell people, if you're
not willing to commit to 10years, you're not really
committing to your business,you're not showing the
confidence, you know, I haverestaurants that come to me and
say, well, you think they do atwo year lease. And that's what
you don't believe in yourbusiness model enough. You know,
you shouldn't be getting intothe game, right? You know,
because many restaurants don'thit a stride until you're three
(03:00):
or four. And then once they arebuilding up and get through
their systems and processes, andreally land on who their
customer is, it takes him awhile to get that word out. And
so if you're only committed to ashorter period of time, many
times, that's when your legs getcut out from underneath you. So
now you've signed a 10 yearlease...
Alan Nickelsen (03:17):
To kind of qualify that same a little bit.
So you could do a five yearlease with a five year option.
Michael Carro (03:21):
All right, perfect. And so now I signed a
five year lease with a five yearterm, I've got a 10 year
amortization, on my 7a loan, Ibuy an equipment package for
$250,000. And I want to doanother $150,000 in renovation
for the space. So let's say I'vegot those two numbers, $150,000
and $250,000. Total of $400,000.
How does that break down in the7a? Do they just give you a loan
of $400,000? Or what type ofdown payment do they need? Let's
(03:45):
talk about those type of terms.
Alan Nickelsen (03:48):
To get a little more detail on the structure of
something like that, you'd belooking at a 10% equity
injection, so on it, using thosenumbers. $400,000, You have to
come up with $40,000
Michael Carro (03:57):
But no difference on the build out versus
equipment.
Alan Nickelsen (04:00):
No,that'd be all blended together and 10 year
term, okay. And so and also toadd full disclosure on a 7a so
when something like that whenI'm saying goodwill, airball
blue sky, the SBA on somethinglike that is going to look for
additional assets to be able tograb if possible.
Michael Carro (04:16):
personal assets?
Alan Nickelsen (04:17):
Correct.
Michael Carro (04:17):
Okay.
Alan Nickelsen (04:18):
So in particular, you see someone's
home or something like that, oreven more typically, you'll see
someone has a loan a mortgage ontheir on their house, but maybe
they have equity. So the SBA isgonna come behind on 7a and say,
All right, we're gonna take asecond on your home. So if
there's $100,000....
Michael Carro (04:33):
Hold on a second position or second mortgage.
Alan Nickelsen (04:36):
Both.
Michael Carro (04:36):
Okay. Yeah, I wasn't sure if you're taking a
second meaning they're pullingyour equity out today.
Alan Nickelsen (04:41):
No,
Michael Carro (04:41):
we're just attaching to it
Alan Nickelsen (04:43):
Attaching to it
Michael Carro (04:44):
Okay, gotcha.
Alan Nickelsen (04:45):
Yes. So just to grab so they have a $300,000
mortgage and it's worth$400,000. Or they say the view
that is the margin that a littlebit, there's $100,000 equity
that say, okay, we're gonna take85% of that and you'll get 80 to
85 percents of $80,000 or$85,000 in so called collateral
attached to that loan.
Michael Carro (05:05):
And what's the process like for getting that
type of loan with the SBA walkus through how long it takes,
how many weeks, it takes how youwork with your local folks.
Alan Nickelsen (05:14):
It takes patience. Patience and
determination are two words thatyou'll hear a lot of because it
does take a lot of information.
A lot of it is based on thetimeliness of it meaning recent
interims dated within, say, 90days. So as the process drags
out, oftentimes the informationyou provided previously, is now
outdated. And so you're gonnaget frustrated, potentially,
(05:35):
because bank will ask forinformation that they asked for
before. But because so much timehas passed, they it needed
updated. And so information willinclude what is that build out?
What is that consist of? What isthe cost of the build out? What
is the equipment, we needinvoices of the equipment,
obviously, we need financialinformation, historical
financial information, personaltax returns, your personal
financial statements, thingsalong those lines, and you'll
(05:57):
have someone when you're dealingthe bank, you've got SBA closers
working with that bank, andthey're gonna walk you through
that process. Typically, youhave probably an attorney
involved that will help withthat process. So it's not
something you have to knowyourself. There are people there
to help assist with that. But itcan be a little cumbersome at
times. But it's just one ofthose things that when you're
(06:17):
dealing with SBA, which isgovernment, we all know how
government works. Andunfortunately, that can take
some time and drag things out.
Michael Carro (06:25):
Okay,
Alan Nickelsen (06:25):
So to answer your question, I think the
timeframe, I would say, bestcase scenario, you're probably
looking at 45 days is best case.
And that's probably aggressive,honestly. So you're most likely
60 to 90 is what you're lookingat.
Michael Carro (06:39):
Gotcha. Thank you. So if I go into the SBA, I
get the loan, I start myconstruction, let's assume that
the construction is $150,000 inthe equipment was $250,000. How
do I get my money? Is it on adraw schedule? Or do they just
give me a lump sum in escrow?
And then I pay for it? How doyou get the money? And if it is
a draw? Is it throughinspections?
Alan Nickelsen (06:59):
Yes, it is going to be a draw process with the
SBA they are going to want tosee everything going on or make
sure their money is being usedfor what is saying is being used
for and so there will be so theloan will be an interest only
period. So it'll work with thethe borrower, so sometimes
depending on the extent of theproject, it might be three
months, it could be six monthsor more. But whatever period
that might be, you'll be payinginterest only on that loan. And
(07:22):
you'll be paying interest onlyon what you've drawn at that
time. So if you've got a$500,000 loan, first month, you
might only have $100,000. on it,your first month interest
payments will be based on thehundred thousand dollars, not
the full $500,000. As thisproject progresses, yes, you
will provide invoices youprovide documentation showing
that the work has been done orcompleted, they will provide the
(07:42):
money, they will also send aninspector out to make sure that
money is being used where you'resaying it's being used. We've
seen situations before wherethat's not the case. And that's
not a good situation for anyone.
So we want to make sure thatdoesn't happen. And so they'll
send an inspector up typically,that's gonna be once a month,
they'll have a copy of plans andspecs that you're working with.
As you do this build out.
They'll make sure that's goingas planned and then they'll
(08:03):
release the funds. Once theinspector comes back and says
yes, the money is going where itsays it's going.
Michael Carro (08:07):
What about equipment? Do they do the same
thing with the equipment? If Iorder the equipment? Do we wait
till it comes in? How does thatwork?
Alan Nickelsen (08:14):
You provide the invoices and then you can go
ahead and pay for that. Yeah,that does not have to come in
first, the bank will look atthat, take the invoices and
submit that payment.
Michael Carro (08:22):
All right,well, that's Alan Nicholson with
synovus Bank talking about theSBA 7a loan for leased real
estate, specificallyconstruction loans and equipment
loans in this episode. Thank youfor listening. And we'll see you
in the next one. Thank you forlistening to The Restaurant
Realty in 10. If you'reinterested in restaurants,
whether operations facilitiesbuying leasing or investment,
(08:44):
The Restaurant Realty in 10 isfor you. Please subscribe to
this podcast and you can alsovisit TheRestaurantRealty.com
for show notes, topics andadditional information.
Welcome to The Restaurant Realty in 10. Ten
minutes of uncensored straighttalk for restaurant
entrepreneurs. Weekly TheRestaurant Realty in 10 dives
into restaurant operations,facilities, real estate, and
investments. Welcome to TheRestaurant Realty in 10. I'm
excited to have Alan Nickelsenwith Synovus Bank back to talk
about restaurant loans. Alanwrote several loans for me on
(00:21):
buildings that we have inDowntown Pensacola, including
the latest one, which was TheGarden at Palafox and Main,
along with a building we havethat has Ruby Slipper from New
Orleans. So Alan, welcome backto the program.
Alan Nickelsen (00:33):
Thank you very much happy to be here.
Michael Carro (00:35):
Well, we're excited to have you as well
since lending is so important toour clients. And specifically
today, we want to focus on thoseclients that are leasing space,
it's a little bit morechallenging to get loans because
of the lack of collateral. So ifI have a client that's going to
lease a space that needs to dosome building improvements, some
(00:57):
build out and then wrap in maybean equipment loan.How would they
go about that?
Alan Nickelsen (01:03):
Yeah, you're exactly right. Those are
probably one of the morechallenging ones we've got. The
restaurant industry itself ischallenging at times. We've got
COVID-19 issues out there andeverything else for the modern
day examples. But yes, from aleasing standpoint, we do kind
of lack collateral in thosesituations, that equipment etc,
which is some hard collateral,but oftentimes, the so called
(01:24):
"build out" is not really ableto be collateralized. We can't
take the property, we don't havebrick and mortar. Because of
that it makes it harder. And sothere's really, I would say
there's a couple of options. Andoftentimes you hear a lot in
lending. It depends. We say thata lot is a lender,
unfortunately, but it does. Itdepends. The reason I say that
is sometimes you have a borroweror a guarantor, who has the
(01:47):
wherewithal to maybe have somesignificant strength behind them
where they maybe personally canqualify for some so called
unsecured lending. And if theyguarantee the debt, therefore
you might be able to get someconventional financing that way.
That's probably a rare example.
So oftentimes, in thissituation, we're looking at an
SBA loan to the governmentbacked loan, and typically look
at a 7a loan, not a 504 but a 7aloan is able to finance what
(02:08):
were the call the blue sky, thegoodwill, airball, there's
certain words you use for it,but that's probably the route
you're gonna go down in thatexam.
Michael Carro (02:18):
So let's say I sign a lease, does the lease
term matter whether it's fiveyears? Seven years? 10 years? 20
years?
Alan Nickelsen (02:24):
Good question.
Yes, it does. So on an SBA 7aloan, we're able to go 10 years
on financing for that. So youcan have a 10 year commitment.
However, to your point, the termof the lease needs to match the
term of the loan. So that term,that lease would need to be 10
years.
Michael Carro (02:37):
Okay? So and that's also going to help out
your amortization. By the way, Ialways tell people, if you're
not willing to commit to 10years, you're not really
committing to your business,you're not showing the
confidence, you know, I haverestaurants that come to me and
say, well, you think they do atwo year lease. And that's what
you don't believe in yourbusiness model enough. You know,
you shouldn't be getting intothe game, right? You know,
because many restaurants don'thit a stride until you're three
(03:00):
or four. And then once they arebuilding up and get through
their systems and processes, andreally land on who their
customer is, it takes him awhile to get that word out. And
so if you're only committed to ashorter period of time, many
times, that's when your legs getcut out from underneath you. So
now you've signed a 10 yearlease...
Alan Nickelsen (03:17):
To kind of qualify that same a little bit.
So you could do a five yearlease with a five year option.
Michael Carro (03:21):
All right, perfect. And so now I signed a
five year lease with a five yearterm, I've got a 10 year
amortization, on my 7a loan, Ibuy an equipment package for
$250,000. And I want to doanother $150,000 in renovation
for the space. So let's say I'vegot those two numbers, $150,000
and $250,000. Total of $400,000.
How does that break down in the7a? Do they just give you a loan
of $400,000? Or what type ofdown payment do they need? Let's
(03:45):
talk about those type of terms.
Alan Nickelsen (03:48):
To get a little more detail on the structure of
something like that, you'd belooking at a 10% equity
injection, so on it, using thosenumbers. $400,000, You have to
come up with $40,000
Michael Carro (03:57):
But no difference on the build out versus
equipment.
Alan Nickelsen (04:00):
No,that'd be all blended together and 10 year
term, okay. And so and also toadd full disclosure on a 7a so
when something like that whenI'm saying goodwill, airball
blue sky, the SBA on somethinglike that is going to look for
additional assets to be able tograb if possible.
Michael Carro (04:16):
personal assets?
Alan Nickelsen (04:17):
Correct.
Michael Carro (04:17):
Okay.
Alan Nickelsen (04:18):
So in particular, you see someone's
home or something like that, oreven more typically, you'll see
someone has a loan a mortgage ontheir on their house, but maybe
they have equity. So the SBA isgonna come behind on 7a and say,
All right, we're gonna take asecond on your home. So if
there's $100,000....
Michael Carro (04:33):
Hold on a second position or second mortgage.
Alan Nickelsen (04:36):
Both.
Michael Carro (04:36):
Okay. Yeah, I wasn't sure if you're taking a
second meaning they're pullingyour equity out today.
Alan Nickelsen (04:41):
No,
Michael Carro (04:41):
we're just attaching to it
Alan Nickelsen (04:43):
Attaching to it
Michael Carro (04:44):
Okay, gotcha.
Alan Nickelsen (04:45):
Yes. So just to grab so they have a $300,000
mortgage and it's worth$400,000. Or they say the view
that is the margin that a littlebit, there's $100,000 equity
that say, okay, we're gonna take85% of that and you'll get 80 to
85 percents of $80,000 or$85,000 in so called collateral
attached to that loan.
Michael Carro (05:05):
And what's the process like for getting that
type of loan with the SBA walkus through how long it takes,
how many weeks, it takes how youwork with your local folks.
Alan Nickelsen (05:14):
It takes patience. Patience and
determination are two words thatyou'll hear a lot of because it
does take a lot of information.
A lot of it is based on thetimeliness of it meaning recent
interims dated within, say, 90days. So as the process drags
out, oftentimes the informationyou provided previously, is now
outdated. And so you're gonnaget frustrated, potentially,
(05:35):
because bank will ask forinformation that they asked for
before. But because so much timehas passed, they it needed
updated. And so information willinclude what is that build out?
What is that consist of? What isthe cost of the build out? What
is the equipment, we needinvoices of the equipment,
obviously, we need financialinformation, historical
financial information, personaltax returns, your personal
financial statements, thingsalong those lines, and you'll
(05:57):
have someone when you're dealingthe bank, you've got SBA closers
working with that bank, andthey're gonna walk you through
that process. Typically, youhave probably an attorney
involved that will help withthat process. So it's not
something you have to knowyourself. There are people there
to help assist with that. But itcan be a little cumbersome at
times. But it's just one ofthose things that when you're
(06:17):
dealing with SBA, which isgovernment, we all know how
government works. Andunfortunately, that can take
some time and drag things out.
Michael Carro (06:25):
Okay,
Alan Nickelsen (06:25):
So to answer your question, I think the
timeframe, I would say, bestcase scenario, you're probably
looking at 45 days is best case.
And that's probably aggressive,honestly. So you're most likely
60 to 90 is what you're lookingat.
Michael Carro (06:39):
Gotcha. Thank you. So if I go into the SBA, I
get the loan, I start myconstruction, let's assume that
the construction is $150,000 inthe equipment was $250,000. How
do I get my money? Is it on adraw schedule? Or do they just
give me a lump sum in escrow?
And then I pay for it? How doyou get the money? And if it is
a draw? Is it throughinspections?
Alan Nickelsen (06:59):
Yes, it is going to be a draw process with the
SBA they are going to want tosee everything going on or make
sure their money is being usedfor what is saying is being used
for and so there will be so theloan will be an interest only
period. So it'll work with thethe borrower, so sometimes
depending on the extent of theproject, it might be three
months, it could be six monthsor more. But whatever period
that might be, you'll be payinginterest only on that loan. And
(07:22):
you'll be paying interest onlyon what you've drawn at that
time. So if you've got a$500,000 loan, first month, you
might only have $100,000. on it,your first month interest
payments will be based on thehundred thousand dollars, not
the full $500,000. As thisproject progresses, yes, you
will provide invoices youprovide documentation showing
that the work has been done orcompleted, they will provide the
(07:42):
money, they will also send aninspector out to make sure that
money is being used where you'resaying it's being used. We've
seen situations before wherethat's not the case. And that's
not a good situation for anyone.
So we want to make sure thatdoesn't happen. And so they'll
send an inspector up typically,that's gonna be once a month,
they'll have a copy of plans andspecs that you're working with.
As you do this build out.
They'll make sure that's goingas planned and then they'll
(08:03):
release the funds. Once theinspector comes back and says
yes, the money is going where itsays it's going.
Michael Carro (08:07):
What about equipment? Do they do the same
thing with the equipment? If Iorder the equipment? Do we wait
till it comes in? How does thatwork?
Alan Nickelsen (08:14):
You provide the invoices and then you can go
ahead and pay for that. Yeah,that does not have to come in
first, the bank will look atthat, take the invoices and
submit that payment.
Michael Carro (08:22):
All right,well, that's Alan Nicholson with
synovus Bank talking about theSBA 7a loan for leased real
estate, specificallyconstruction loans and equipment
loans in this episode. Thank youfor listening. And we'll see you
in the next one. Thank you forlistening to The Restaurant
Realty in 10. If you'reinterested in restaurants,
whether operations facilitiesbuying leasing or investment,
(08:44):
The Restaurant Realty in 10 isfor you. Please subscribe to
this podcast and you can alsovisit TheRestaurantRealty.com
for show notes, topics andadditional information.
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