802: Special Guest Interview Joshua Kim on SBA Loans (Part 1)
Get the guidance you need now.
For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio, book a complimentary consultation.
00:01
Welcome to Episode Two of Season Eight of the Growing Empire Show. Today I'm here with my special guest, Joshua Kim, and we're going to talk about how to use SBA loans to fuel your investment property purchases. So stay tuned.
00:16
Welcome to Growing Empires hosted by real estate entrepreneur and trusted investment advisor Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.
00:35
So welcome, Joshua to the Growing Empire Show. I'm so glad that you're here.
00:40
Hey, how are you? Thanks for having me on.
00:42
Fantastic. So let's kick off this episode about utilizing SBA loans to fuel your investment strategies with you sharing a little bit about the work that you're doing now and how you got started growing your own empire.
00:52
Yeah, so it's great that we got connected for the audience. I actually got connected with Jen here through the guy who helps do all the backend for her podcast. He does podcast production, through his agency. I actually have known him a while. I actually helped him get an SBA loan to scale his business. And he was like, Oh, hey, you would love talking with Jen. You should go on on her podcast. She's got a great audience that would probably love to hear about what you can do with SBA financing. So, you know, to your question there, I got started with SBA financing, I was able to purchase a business at a pretty young age with an SBA loan. And I parlayed a lot of the expertise that I have doing that to a couple businesses now. One of them is a consulting business where we do help business owners with, you know, any any kind of need for for an SBA loan. I mean, obviously, we're here talking about real estate. You can use SBA financing to purchase real estate, to do tenant improvements, you know, as well as, you know, groundwork construction, if it's something for, you know, related to a business purpose. And it's a great resource that is often overlooked, I think, by a lot of people, especially, you know, for the folks in the audience who have a business and you know, they're wanting to use good capital resources for commercial real estate. SBA financing has a lot of advantages over traditional financing, better term at a rate, often much lower down payment, you know, equity, injections acquired for, for property acquisitions. So that's a lot of what I have very, very close technical expertise in. So I, you know, I got into the businesses that I was involved in before, and I have been branching into a couple of other businesses. But all of them are kind of focused around other capital raising, or I have another one. It's other financial services related to tax credit. So we work a lot of business owners helping to make sure that we're maximizing tax credits, rebates and incentives that are pretty hidden in the 26-2700 pages of the tax code.
02:48
Fun Reading, right? Yeah. So am I correct in assuming that most of your businesses are focused around consulting? And so you're not actually doing the lending. Am I correct on that? You just help direct people to the lending resources that you have.
03:03
Correct. And so one of the things about SBA financing that is often, you know, misunderstood is that a lot of people, they get declined in at one lender, and they assume that there's some sort of issue with SBA loans as a whole. And 99% of time, that's not really true. That's certainly the case. Most of the times the problem lies with the bank. And so the reason for that is SBA loans are a lot more art than they are science, you know. Getting your credit card getting a mortgage for, you know, a piece of property. In most cases, it's very algorithm driven, they look at your credit, they look at your income, they look at the value of the property, they look at very objective metrics to prove it. SBA financing has a lot more nuances. They look at, you know, what the guarantor experiences, they look at the projections to the business, they look at a lot of things that, you know, aren't taken into consideration with a traditional credit product. So a lot of times, you know, I work with a lot of like dentists, doctors, vets, you know, small manufacturing businesses, and they want capital. But they're like, Hey, you know, we talked to Bank of America and they weren't able to help us. We talked to Chase and they weren't able to help us. And so, it's really interesting, because a lot of times in the real estate world, the best option you have for finding a lender is just going to a local one, right? That's that's kind of the mindset is, let's just go to a local lender, see who's. And in SBA, that doesn't always work. And so that's, that's why my business in the consulting realm has been successful, and we've been able to help a lot of people is because there's a lot of misconceptions about how to go get money through SBA programs. And a lot of times it's not going to Chase and it's not going to your local lender. You'd have to go to a specialized, you know, regional or national lender that just does SBA or, or has a big division that does it. And it's you know, I'll tell you, it's, it's, there's there's a lot of there's a lot of nuances like I'll bring up a story. I'm working with a guy right now. It's real estate related. He's buying a campground related business in Georgia, so it's they've got a bunch of cabins on the property they have a restaurant, they have a bar, the business has done fantastic through COVID actually, because it's kind of out of the way. And so a lot of people just wanted to get out of Atlanta and some of the other more urban areas of Atlanta to escape COVID. And they just booked out a cabin for, you know, a month or two, right? So, you know, we've been having some friction points, actually finding the right lender for it, just because there's a lot of moving parts with this deal. The deal, itself assault has good cash flow, the guy coming to the table, he owns, I believe, like 30 single family rentals. So he's got good collateral, you know. He obviously knows what he's doing. It's just, you know, some banks just didn't quite understand the business. And so that's, that's really where the value of the consulting has come in is, I'm able to leverage my unique network of relationships to make sure we can bring a couple of lenders to the table, who will have a solid chance of getting it done, versus him, you know, wasting a lot of time, just you know, he calls Bank of America, he calls Chase, and then he gives up after he gets declines from both of them, because both of those big banks generally suck at doing any sort of small business product in the loan space. So.
06:03
Wow, that's awesome. So today, we're definitely going to talk about some of those creative financing strategies using SBA loans. And I've asked Joshua to join me to share his wealth of knowledge and secrets that he's picked up over the years. And today, we're going to cover what you can buy with SBA loans, how SBA loans differ from conventional loans used in real estate purchases, and how to use SBA loans to feel your investment game. So I'm going to jump right in, because we've got a lot to cover today. First question, you know, I've heard a lot of bad things about SBA loans, like they take a long time, they require a lot of collateral, and are complicated with paperwork is Is that true? Or is that kind of where you come in?
06:39
So at the end of the day, I can't cut back on the amount of paperwork that someone has to fill out to get a loan. The requirements of the documentation are going to be the same no matter what. But what I will say is a lot of times the biggest misconception I like breaking people's in I touched on it prior, not all banks are created equal. And so what that means is you can get like I've had dentists, they come to me like I don't want to go down that road of SBA you know what? And then that usually prompts the probing question like, what's your version of like, Oh, well, I went to this bank, and they just kept asking for documents over and over and over and over for about, like two months straight. And so, you know, once I learned the name of the bank, I was able to explain them like, Hey, hey, guys, look, this, this bank doesn't do more than like, 40 SBA loans a year. They don't have a specialized department, and they don't know what they look like. They don't even know what they're asking for. Right. That's the funny part is sometimes that's where that myth, you kind of touched on, it takes a lot of paperwork comes from, is because you've got banks that ask for all the superfluous information that's not even needed, because they don't even know how to do loan. So anyway, is that that's, that's what I'd say about that one part. The paperwork requirements are really not that bad. There's only two forms that you have to fill out for the SBA. One is a personal financial statement. One is a borrower information sheets. So the bank would be asking you for all that information anyway. Just instead, it's it's on a specific SBA form that they keep for the file. Right. So that doesn't require a title collateral. I mean, my story is like, I was able to get over a million dollars to purchase a business at 19. And I and I had 20-30 grand on my name at that point, right? So it just, it depends a lot on the lender. And I have lenders that are completely fine with RJ walls like that. I've got ones that they get really aggressive on real estate, but their credit box is the size of the head of a pin, right. And so if it fits there, they'll they'll be very aggressive on the rate. But they only do deals if it falls inside that box. And so that's what I would tell people about like, does it require to the collateral, you know, the paperwork. It's going to depend a lot on the lender. But if you work with a competent SBA lender, they're not going to need a crazy amount of collateral and they're not going to need some, you know, inundated amount of paperwork. They've got the process down, they've got it figured out, they're going to ask you for just for what they need, and you know, not a ton more.
08:54
The episode will continue in just a moment.
08:57
If you're like me, you know the importance of diversifying your investment portfolio. Real Estate Investments, whether you're an active or passive investor are a great way to add variety and reduce risk to your overall portfolio. But what about stabilizing that portfolio? If your portfolio is diversified through real estate, you still have to stabilize your properties with the right tenancy know when and exactly what capital improvements to do, and assess your entire property's portfolio to maximize property values and their income potential year over year. Yes, it's a lot and you'll need help to make sure you're looking at everything as objectively and strategically as possible. Get the guidance you need to assess and make the right decisions that will stabilize and optimize your property so their longevity is assured. book a call with me and I'll guide you through the process and answer your questions. Go to growingempires.com and click on book a consult and you'll be on your way to a healthier, more stabilized and diversified portfolio with real estate.
09:55
So what kinds of businesses are ideal for SBA financing?
09:59
It's a good question. So I think for the, I guess, in consideration of the audience, SBA, one of the nuances and I will say one of the qualifiers we'll put out there is I mean, you can't use it for purely buying investment property. You can't just go buy a single family home with it, and, you know, turn it into an Airbnb and say, Oh, well, I turn it into a business right there they have, they have specific thresholds and tests that they use to determine if a purchase is truly, you know, workable for it. So one of the nice things about SBA though, is that you can buy commercial pieces of property with SBA financing, and so long as you have a business that will occupy part of the space there, it will be eligible. I mean, technically, they say, Oh, you have to occupy 51% of the square footage at the time of closing. But I'm just gonna say this, on the podcast here, a lot of the banks that I know that are out there, they're like, hey, as long as you put down on paper, that you will occupy 50% of the space after closing, we'll give you the loan. We're not going to send anyone a check on it. We don't really care. But, you know, monkey, See No Evil, Hear No Evil, you could do what you want. So really any business that would need real estate, I'm working on a couple deals right now for guys that are in the manufacturing space, right? Right now, they're, they're leasing their property. And they want to be able to purchase the property from whoever they're leasing from. Because they know they're going to be there for a long time. So they're like, hey, how do we do this? So an SBA financing is great for them. I do work with a lot of dentists, doctors, vets who, you know, maybe they have one location, they want to expand the property they’re in now they want to do TI. Maybe they want to go buy another location so that they can go in and put more, you know, they want to open a second or third practice location. SB financing is great for them in that area. There's really not a lot of businesses that it's quote, not for. And that's that's another myth I like breaking for people that like, Oh, well, my business is ineligible. Okay, why? Well, I'm in this industry, I talked to this bank, and they said, I can't, you know, I'm not eligible. Well, I mean, that's usually the bank's nice way of saying, like, we don't want to do the loan. But I think it just does a disservice to people because it puts out bad information, right. But, you know, if your business operates in the US, they're for profit. And as long as you aren’t running, like a brothel, or a, you know, a retail marijuana dispensary, or some sort of loan sharking operation, you'll, you'll be good. I mean, they have some guidelines. And if you have a business, you're not sure about it, you know, you can email me ask if it's eligible. But, you know, 99% of the businesses I run into will fall under what is considered SBA eligible. But you know, again, the key thing for the audience here is it's the Small Business Administration. It has to be some sort of business that you can tie back to the property. So I know a lot of the folks listening that, you know, they probably run a small business, and they're trying to figure out how do I take, you know, the money that I have, that I'm actively making in my business from, you know, working and hustling day to day? And how do I take that and put it into you know, long term wealth into real estate SBA can be a great resource for that, because you can keep more money in your pocket on the business side, instead of renting. I'm working with a surgeon right now, a good friend of mine out in California. He, you know, his his rent is very expensive, because it's California, and it's on two locations. And we've we've done a deal where we've lined up a deal, he's got two buildings he wants to purchase, we did the math for his CFO, and we're gonna get them all the capital, they need to buy these two buildings, do tenant improvement, refinance some heavy equipment they have it some of their lease locations now, and get $600,000 of extra working capital to run the practice. The net cash flow savings to him. It's about $23,000 a month. Wow, that's phenomenal. And so you know, for the folks in the audience who are like, Alright, you know, what can I use SBA for? right now is really the best time to go out there and leverage a loan to buy the property. Or if you know, if you want to do like a rent replacement, you want to buy an office for your business, now's the time to do it. rates have never been lower, though. There's lots of incentives available for SBA loans. We can we can get into those later. But yeah, that's just a couple examples.
14:04
So what kind of maximum loan amounts or terms are we talking about with these SBA loans?
14:11
Yeah, so that's a good question. There's really two main SBA loan products that are out there. We obviously have all this stuff that's out there from PPP, EIDL all the disaster programs. Those are, those are flash in the pan. I mean PPP is already done. EIDL I think only goes to the end of the year. The two main programs out there are the 7A and 504 program. The 7A, you can go up to 5 million. 504 it'll go up to 10 million. And in some instances, you can go a little bit over that, but you got to do a lot of stuff. Like you got to get green energy panels in the building and this and that it's very complicated. So I just tell people for all intents and purposes, $10 million is the cap on on the 504 program. 7A, you can use it for anything, you know, growth capital, working capital, you know, buying equipment for your business, or real estate. 504 is exclusively for real estate. So you have to either be buying a piece of real estate, building a piece of real estate, or doing improvements to existing real estate for to qualify?
15:04
Okay, so what kinds of things can you actually use the financing for? I know you mentioned business acquisition, right? And you did mention real estate purchases like if you're leasing and you want to buy the building that you're in. What about like things like partner buyout working capital growth of a business? Can you use SBA loans for that sort of stuff?
15:24
Yeah, I'm actually working on two different partner buyout transactions right now one of them smaller ones only for like 200,000. It's an LED light related business. So they basically just wholesale lights to, you know, contractors who are using it for building projects, you know, that's a small $200,000 partner buyout. I've also got a larger one, it's a diagnostic laboratory related business. And it's two partners, a husband wife buying out that a third partner who wants to, you know, go focus on you know, some other business ventures of his and it's a million dollars. So you can use it for partner buyouts. Growth and working capital are always an option. So, you know, like I mentioned on the intro of our of our podcasts here, that's what I help for, for David, the guy who does all your podcast production. He wanted some growth capital, so you can go hire some more people, put some marketing folks in place, you know, get more clients out producer podcast for. And yeah, you know, growth, just general growth financing. Another big one that we see too is debt refinancing. So you know, a business owner who's got, you know, a line of credit here, here, here, here, and he's like, Hey, I'm paying like, you know, on average 11% for this money, I'd like to refinance it into a, you know, some long term loan. So like, for example, I'm working with an Allstate guy right now. I mean, he's got he's been able to grow his agency very well, last couple of years. But he wants to refinance about a million dollars of working capital, he has outstanding, right. And he's paying a much higher rate through the lender he has now. And so by taking it over from where it's at now to SBA, we're going to be saving about three and a half percent a year. So on a million dollars, it's like 35-40 grand. It's a pretty reasonable number. So yeah, debt refinances are a big partner buyouts, just general growth capital. You know what I would say is, I mean, even if your business has the cash flow to support it, banks are generally hesitant to just cut a check to someone for like over a million dollars without really any specified use. So you know, working capital is usually more limited by what the underwriters will view as reasonable. Like, if you've got a business with low capex, and you go to them and say, Hey, you know, I can afford borrowing a million dollars, and I want it and you don't really tell them what's for those say, Well, here, we'll give you like 400 now, right. Come back to us once you've spent that you need more. But yeah, growth and working capital is a very common use of proceeds.
17:31
Okay. So is there anything that's in place now, as an incentive that is not typically there? Maybe as a, you know, just the effects of COVID and stuff in the marketplace? So, you know, would you say, you mentioned earlier that now is a great time to use these SBA loans. Is there something that's happening in the industry that people need to know about? Like, why now versus later?
17:52
Yeah, so I touched on it earlier, when I said, you know, now's the best time ever, that's a couple of factors. One, I mean, rates rates have never lower. And so anyone in real estate probably probably knows that the rates are rock bottom. And so when it's, you know, refinancing this or that now it's time to do it. My Dad, I'm, I'm here visiting my family today. My dad refinanced at like two and a half percent or something. I mean, it's, it's kind of ridiculous how cheap it is, it's relatively inflation. So you have interest. And most of the incentives available for the 504 and 7A program have been glossed over. And they're not really being talked about because everyone's focused on the other disaster relief related programs. But as part of the Cares Act, both Cares Act One and Cares Act Two, the one they signed, I think back in like December or October. Somewhere between October and December of last year, they, they basically extended all the stuff that you had before. But one of the things we're doing is if you get a loan right now, prior to October 1, they will pay the first three months alone for you the SBA, and they will also waive all of the guarantee fees. Which are you know, the the fees associated with getting your loan done. It's how the SBA doesn't lose a bunch of money every year, right. They just charge a small insurance premium on every loan called a guarantee fee. Those are all wave right now rates are really low and they're also gonna pay the first three months of the loan for you. So if you're out there and you know, let's say got a business you go get 500,000 those benefits between three months of payments and the fee waivers can be worth at least like you know, $35,000. Which is a reasonable chunk of money relative to the overall right. And then them paying the first few months on for you. That's that's a great way to you know, maybe you're using it for a partner about or business acquisition whatever, gives you a little bit more breathing room for the first couple months are really just get everything locked down and running smoothly how you want it right. So.
19:37
I hope you enjoyed today's show, please stay tuned for part two with Joshua Kim, in Episode Three of Season Eight. Until next time, take care.
19:48
For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio, visit growingempires.com
Click here for more information on how Joshua’s team can help you with SBA loans.