My SBA Loan Pro Podcast Ryan Smith

In this episode, your SBA Loan Pro, Ryan Smith covers the following SBA Financing Topics:


Access to capital
Types of transactions being financed
Lender processing times
Current 7(a) & 504 loan interest rates
Interest rates for prime borrowers
Bonus Content - Behind The Curtain of SBA Financing

Contact Ryan at (858) 762-2774 or visit thinksba.com for more information or to get the application process started today.

Residential Care Facilities for the Elderly (RCFE’s) have become the housing model of choice for our senior population and their loved ones due to the fact that many require increased accessibility, social connectivity, and medical support services that living at home simply cannot provide.

As the name implies, RCFE’s, also called assisted living facilities, are often located in suburban residential neighborhoods.

Many of these assisted living facilities are permitted to house between 6 – 16 senior adults. As a result, buyers and sellers are often represented by residential real estate agents and brokers who are only familiar with residential mortgage financing.

Though residential mortgage financing will suffice when acquiring unconverted residential property it does not when the loan purpose includes ground up construction of a new facility, refinance or acquisition of an existing facility.  This makes finding the right financing difficult. That is why it’s important to align yourself with an expert.

In an RCFE sale transaction, both sellers and buyers should take note of the following qualifying criteria:


Whether the buyer is able to demonstrate direct or equivalent experience which qualifies them to own and operate an RCFE per bank guidelines.
The process to re-license an RCFE with a new owner, operator and how that can affect the escrow close date.
How the appraised value is determined for purchase transactions, refinances and ground up construction and the impact to down payment percentage requirements.
When a Phase 1 Environmental Report is required and when it is not.
How to calculate and identify use of square footage to qualify for prime lending rates and terms.
Whether the level of medical support services offered at the facility qualifies for prime lending rates and terms.

Loan Terms Available For Qualified Borrowers whether ground up construction, refinance or acquisition includes.


Minimum 15% equity injection allowing entrepreneurs to keep more capital in reserves for strategic growth and unexpected expenses.
Loan closing within 45 – 60 days to meet the demands of escrow.
Requesting working capital to meet the demands of short term operating expenses after the transaction closes.
Reasonable interest rates and up to 25 year amortization period for easy monthly payments.
Flexible pre-payment penalties giving business owners the power to payoff their loan on their terms.

Life insurance is a contract between a policyholder and insurer where the insurer promises to pay the insured's beneficiary an agreed amount upon their death. The most common application is between heads of household and their dependents.

Life insurance is also used by commercial lenders as a risk mitigation strategy for loan applicants of privately held, family owned businesses.

In the same vein the SBA requires that loan applicants obtain a collateral assignment of life insurance for the lender's benefit when the business is formed as a sole proprietorship or single member LLC and is otherwise dependent on one owner’s active participation.

Examples of businesses dependent on one owner's participation include businesses where special training or licenses are required such as doctor's offices, assisted living facilities, contractors, mechanic shops, etc.

The required face value amount of the insurance policy for 7(a) loans is determined by the operating businesses industry classification code, loan amount, length of loan term and available collateral.

On the other hand, Certified Development Companies (CDC) which fund the 504 2nd Deed of Trust, also known as the Debenture, are mandated to require a collateral assignment of life insurance with a face value amount equaling the Debenture minus the available collateral's discounted liquidation value based on the following schedule:


Commercial real property including buildings: 75% of appraised value.
Residential real property including buildings: 80%. of appraised value
Land only: 50% of appraised value
Equipment: 50%.of appraised value
Leasehold improvements: 5%. Of appraised value
Furniture and fixtures: 5%. Of appraised value

Now, pay close attention to these three important points.


A collateral assignment of term Life insurance is acceptable to meet the SBA’s requirement. No lender should ever require universal or whole life insurance which are generally more costly..
A loan applicant may assign to the lender or CDC an existing policy that meets their underwriting criteria.
A lender can waive the requirement to obtain life insurance if a licensed insurer provides written documentation that the loan applicant is unable to obtain life insurance. Some lenders require denial letters from a minimum of two licensed insurers.

As a best practice, I recommend loan applicants discuss the requirement to obtain life insurance with their loan broker or SBA business development officer upon or before the loan is submitted to underwriting or is scheduled to be presented at loan committee.

The length of time it takes to obtain life insurance is between one to six weeks, or more depending on the life insurance company’s pipeline density, underwriting practices and the loan applicant's age and health status.

The most frequently asked question I receive by far is how long does the loan application process take to complete from start to finish.  The quick answer is 45 - 60 days. The honest answer is it takes as long as necessary to complete all steps in the process.

The next logical question is what are the steps.  Here is a list of each step in order with an explanation.

Before I begin, I want to emphasize the timeline starts from the day the lender receives the monetary Deposit, usually $2,500 or $5,000 and the signed Letter of Interest or Term Sheet.

Step 1: Loan Application Needs List.  This needs list is sent to the Applicant by the Lender in preparation for underwriting.  Included are General Application Forms and SBA Forms 1919, 413 and 912 if necessary.  It typically takes 2 - 4 days for the lender to generate this needs list from receipt of the monetary Deposit and signed Letter of Interest.

Step 2: Underwriting.  The amount of time to underwrite the loan is 1 - 3 weeks depending on the lender's pipeline density, available underwriters and support resources and outstanding information required by the underwriter to render a decision.

Step 3: Credit Decision. The credit decision is announced upon completion of underwriting or the conclusion of ”loan committee.”  Some lenders shepherd loan requests through individual underwriters in an underwriting loan center. Other lenders maintain a decision making body referred to as “loan committee.”  It takes 5 - 10 days for an underwriter to review a loan application and either return to the applicant with questions or a credit decision, meaning the loan is either approved or declined.  Loan committees decide a loan in the committee meeting which is typically held    one day per week or every other week.

SBA 504 loan requests require a separate SBA Approval called an Authorization which may add an additional 5 - 10 days to the entire application process.

Step 4: Commitment Letter. The commitment Letter outlines conditions required to close the loan and is sent to the Applicant 2 - 4 days after loan approval. This step begins the process of ordering third party reports and the collection of closing documents.

Step 5: Third Party Reports & Closing Documents.  A real estate appraisal is ordered by the lender to be performed by an SBA approved third party appraisal company. The appraisal may take 2 - 3 weeks to complete with an additional 2 - 5 days for lender review.  If a business acquisition is included with the real estate purchase, a business valuation is also ordered which also takes 2 - 3 weeks with an additional 2 - 5 days for lender review.

Step 6: Quality Control / File Audit. Once all closing documents and third party reports have been completed and approved the lender conducts a final review of all required documents and reports necessary to close the loan which takes 2-5 days. The lender orders loan documents to be prepared for signature when the file is deemed complete.

Step 7: Loan Document Preparation. This step takes 1-3  days before loan signing may be scheduled.

Step 8: Loan Document Signing. Loan signing takes place immediately after escrow receives lender instructions and loan documents.

Step 9: Bank Funding. Loan is funded after the lender receives signed loan documents from escrow and escrow confirms all requirements to close the loan have been met by the Applicant and Seller.