SBA 504 & 7(a) Loans for Senior Housing and Assisted Living

SBA 504 & 7(a) Loans for Senior Housing and Assisted Living Properties

New 2023 SBA Standard Operating Procedures

Attention current and future small business owners! Exciting changes have arrived in the realm of SBA lending, bringing a wave of positive transformation for businesses across the nation. We are here to guide you through the top highlights of the new SBA SOP and additional guidance, ensuring you stay ahead of the curve and maximize the benefits for your business.

Let’s dive into the key updates:

  1. Equity Injection: The rules surrounding equity injection have been revised. When acquiring a business that results in a complete change of ownership, the SBA now requires an equity injection of at least 10% of the total project costs. Furthermore, seller debt that is on full standby can be considered as eligible equity injection. For startups, the SBA no longer requires equity injection, leaving it to the bank’s credit policy to determine the necessary amount. In the case of Employee Stock Ownership Plans (ESOPs), lenders with delegated authority can submit ESOP transactions, and loans for purchasing a controlling interest in a small business do not require equity injection.

  2. Partial Changes of Ownership: Exciting news for deal structures! SBA loans can now be utilized for the purchase of a portion of one or more owner’s interest in a business. This opens doors to new possibilities, benefiting all parties involved. Selling owners can remain involved in the day-to-day operations as officers, directors, key employees, or employees.

  3. Simplified Affiliation Consideration: Affiliation standards have been streamlined, simplifying the determination of business size. The concept of control has been removed, and affiliation will primarily be evaluated based on percent ownership. The complex provisions related to management and control, franchise or license agreements, and identity of interest have been eliminated.

  4. Personal Resource Test Elimination: Good news for loan applicants! SBA lenders are no longer required to evaluate the personal liquidity of loan applicants during the review process. The focus has shifted to the business’s creditworthiness and repayment potential.

  5. Streamlined Lending Criteria for Small Loans: Loans under $500,000 now benefit from streamlined lending criteria. The due diligence and documentation process for creditworthiness has been relaxed, providing more flexibility for lenders. Credit scores or history, earnings or cash flow, and applicable equity or collateral can be individually or collectively considered for loan approval.

  6. Simplified Business Debt Refinancing: Refinancing business debt has become simpler, reducing the complexities associated with refinancing own debt and the debt of other lenders.

  7. Updated Insurance Requirements: Life insurance is no longer mandatory for 7(a) and 504 loans, giving lenders the freedom to decide its relevance and assign policies as collateral. Hazard insurance is no longer required for loans under $500,000, except for those with real estate collateral.

These comprehensive updates to the SBA lending programs aim to reduce red tape, expand access to capital, and facilitate the growth and success of small businesses. Our affiliate, HavenCo Capital, is committed to helping you navigate these changes, capitalize on the opportunities, and make informed decisions that drive your business forward.

Don’t miss out on the transformative possibilities these updates bring. Partner with HavenCo Capital to leverage these game-changing developments and unlock the full potential of your business. Together, we’ll pave the way for your success in the dynamic world of SBA lending.

To be considered for Certified Development Company(CDC)/504 loan, applicants must meet these eligibility requirements:

  • Operate as a for-profit company.
  • Do business (or propose to) in the United States or its possessions.
  • Has a tangible net worth less than $15 million and an average net income less than $5.0 million after taxes for the preceding two years.
  • Loans cannot be made to businesses engaged in speculation or investment in rental real estate.
  • Be an eligible type of business. While the vast majority of businesses are eligible for financial assistance from the SBA, some are not. Check this list of eligible and ineligible types of businesses to see if your company qualifies.
  • Under the 504 Program, plan to use proceeds for an approved purpose. CDC/504 loan proceeds may be used for the financing of fixed assets like real estate or equipment. This list explains Eligible and Ineligible Use of Proceeds.
  • Not have funds available from other sources. SBA does not extend financial assistance to businesses when the financial strength of the individual owners or the company itself is sufficient to provide all or part of the financing. Both business and personal financial resources are reviewed as part of the eligibility criteria. If these resources are found to be excessive, the business will be required to use those resources in lieu of part or all of the requested loan proceeds.
  • Ability to repay the loan on time from the projected operating cash flow of the business
  • Good character. SBA obtains a “Statement of Personal History” from the principals of each applicant firm to determine if they have historically shown the willingness and ability to pay their debts and whether they have abided by the laws of their community.
  • Relevant management expertise.
  • Feasible business plan.

Learn about the SBA 504 Green Program which will allow you to borrow additional funds for investing in renewable energy initiatives

The 7(a) loan program serves as the SBA’s primary business loan program to help qualified small businesses obtain financing with or without real estate.

The following are also requirements from most SBA Lender Banks:

  • Licensing will need to be reserved for, applications and character pre-screen approvals prior to any closing.
  • 15% down as it is special use.
  • Experience, and or professional designations
    If a startup, and no prior experience running/owning this type of business needs mitigation.
  • Did they have a key Management role at an existing employer for some time?
    Key employee?
    Possible for seller stay on for up to 12 months in advisory capacity?
  • Construction: Special need special costs, and special LIQUIDITY requirements.
  • Income: Percentage of income broken down as paid by client personally/how, and % of insurance, Social Service, State Aide as applicable.
  • Patient to Care Giver Ratios with state intel.
  • Strong Business model and narrative.
  • Projections on all types transactions with all the business and income justifications and measurements.

To be considered for Certified Development Company(CDC)/504 loan, applicants must meet these eligibility requirements:

Typical uses are for:

  • Start-up companies and franchises
  • Business acquisitions
  • Business expansions
  • Refinancing of current business debt

Loan proceeds can include:

  • working capital costs
  • furniture and fixtures
  • machinery and equipment
  • leasehold improvements
  • land and building
    closing costs
  • debt refinancing

Loan maturity is up to 10 years for leased locations and up to 25 years if real estate is included. Loans are fully amortized and do not have any balloons or calls. Interest rates are extremely competitive.

How much is the SBA 7(a) loan guarantee fee?

The SBA determines program fees each fiscal year. These fees are universal no matter which lender you choose to work with. The fee is calculated by taking both the loan amount and the loan term into consideration. In general, larger loan amounts and longer terms equate to a larger fee percentage. However, the fee is only based on the portion the SBA guarantees.

The following table shows the guarantee fee on loans with a maturity that exceeds 12 months.

Loan AmountGuarantee Fee
$1,000,000 or less0.00%
$1,000,001 to $2,000,0001.45% of the guaranteed portion up to $1,000,000, plus 1.7% of the guaranteed portion over $1,000,000
$2,000,001 to $5,000,0003.5% of the guaranteed portion up to $1,000,000, plus 3.75% of the guaranteed portion over $1,000,000

*Fees as of October 1st, 2023

Please note that the guarantee fee is calculated differently when you request multiple loans within 90 days of each other.

For loans $2,000,001 – $5 million, the fee is 3.5% of the first $1 million guaranteed ($35,000) plus 3.75% of the remaining guaranteed amount.

When you need assistance, please fill in this form and within 24 hours a representative will be in touch with you. Your information is held in strict confidence and is never sold to a third party. We look forward to serving you.

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SBA 504 & 7(a) Loans for Senior Housing and Assisted Living

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