Unlocking SBA Loans: Your Guide to Real Estate Financing Success

Dylan Silver (00:01.752)
Hey folks, welcome back to the show. Today on the show, I have a long time SBA expert with the entire Diamond Financial team and they’ve been committed to the success of intermediary communities since 1996. They serve high volume broker offices and Steve Mariani, who we have on the show, travels the country explaining the many creative methods SBA financing can be utilized to close

Steve Mariani (00:28.256)
Thanks Dylan, I appreciate you having me. Any chance to get information out there to the public is always a blessing for me and that’s what I live my life for, advocacy for small businesses. So I appreciate the opportunity of sharing information.

Dylan Silver (00:30.656)
additional transactions. Steve, welcome to the show.

Dylan Silver (00:47.766)
Absolutely, Steve. You I always like to start off at the top by asking folks, you know, how they got into the business that they’re in. I think the SBA is very niche, right? And we were talking before hopping on here. There’s not that many people doing it at the level and you’re the biggest in the country. So walk me through how you got started back in in 96.

Steve Mariani (00:55.424)
Thank you.

Steve Mariani (01:01.888)
We just think that way. So, what’s the way you try to start your business and get success?

Steve Mariani (01:27.948)
I looked around to determine how could I best serve the people. I’m community oriented. I’m not a fee driven person. There’s not a fee driven company. So, so, you know, I looked around to say, cause what I realized is no one ever helped me. I did get a bank loan the first time, but it was like pulling teeth and they had no idea it was for business. And I thought that that was wrong. So what I did was I went out and decided I was going to learn the SBA product. what I found was, there’s very little money in it and it’s a lot of paperwork and a lot of work. So I knew that’s.

where I had to focus and that’s been my goal since 96 is to understand the SBA rules and help utilize every single one that can benefit clients and help them work with it.

Dylan Silver (02:09.708)
I want to ask you about maybe some granular details about SBA. Maybe give away some of the gold, but not all the gold, Steve. I think a lot of people when they’re starting a business, they’re looking at multiple different avenues. Bootstrapping, using their own money, you know, maybe doing as a side hustle while they have a W-2 job. A lot of people might look at finding partners. Some people might look at raising capital. And then I think also people are looking at SBA, but it seems very tricky, I think, for a lot of folks.

Steve Mariani (02:12.928)
Thank you.

Dylan Silver (02:37.303)
At what point in time would you say that it would be maybe appropriate for people to go the SBA route? At what point in time in their business, at what scale can they look at SBA?

Steve Mariani (02:47.351)
Great question, Dylan. And really it comes back to, you know…

Depending upon the size of their business, over 75 % are initially started with personal capital, whether it be credit cards or HELOCs or home equities or whatever the case may be. But once they get to a sustainable portion in their business, it’s time to refinance those smaller debts. A lot of the clientele that we work with are already established five to 10 years in business. And then looking at the real estate component, because they’ve been paying rent as they grow and would like to then invest

into their own real estate and that’s a big portion of it too. you know, once they get to a point where they have debt service ability, they should be considering SBA on a refinance if it’s a startup. A lot of what we do are acquisitions and transfers of businesses on the larger side. You know, a two or three million dollar goodwill transfer where the business makes eight or nine hundred thousand dollars. That could include a piece of real estate or they could be moving into a piece of real estate, which is also another blessing. The SBA is a big benefit there.

Dylan Silver (03:53.196)
I want to ask you about what the SBA can be used for. So I’m thinking about the real estate space, right? And how typically when people are talking about financing, they’re looking at deal acquisition, right? Or, you know, a construction loan or something along these lines. SBA, can that be used for those types of costs?

Steve Mariani (03:59.84)
Sure.

Steve Mariani (04:13.504)
They can absolutely be used for those types of costs. Any type of real estate, here’s the rule that I think your base needs to understand. As long as your business is occupying 51 % or more of any business purchase, any commercial real estate purchase project, then all of those costs will be covered. So let’s just say you’re tired of paying rent and you want to go into a building and it’s going to take $100,000 worth of up-fit and maybe even another $50,000 worth of new equipment to up-fit the new place.

All that can be included in a single 25-year term when it comes to SBA. And the down payment never goes above 10%. So no matter what your project looks like with all those additional costs, it’s only a 10 % down on a 25-year term. So typically, we’re adding cash to a borrower’s income.

Dylan Silver (05:05.772)
I have a maybe a question. I don’t know if you’ve gotten this one before, but there’s a lot of single family home investors that I work with and they own LLCs, right? And maybe they would have never considered SBA, but if they’re looking at maybe this type of financing, they could potentially use this to acquire a single family home and maybe do a flip, no?

Steve Mariani (05:13.834)
Thanks for watching!

Yeah, I think it was actually interesting.

Steve Mariani (05:30.053)
No.

So SBA cannot be used for investment type real estate. So what we’re going to cross off are apartment buildings, strip centers, anything that’s investment related. Like I had mentioned, we have to occupy 51 % or more of the space we’re financing. Okay. So if we’re doing a strip center, you know, that has 10 stores, as long as you’re operating out of six of them, the other four are eligible.

Dylan Silver (05:36.512)
Okay.

Dylan Silver (05:50.574)
you

Steve Mariani (06:00.706)
But once it drops under 51 % then it becomes ineligible for SBA. Aside from, and I should point this out, there are some exclusions which is storage facilities because that’s all real estate and basically investment. Those are eligible under the SBA programs. there are specific

Dylan Silver (06:18.926)
Hmm.

Steve Mariani (06:21.376)
But typically it’s for a business that’s looking to just expand into their own real estate because they’re tired of paying. You know, we see sometimes where they’re paying two, $300,000 a year in rent for a larger facility and, you know, they could be paying their own mortgage.

Dylan Silver (06:31.981)
Yeah.

Dylan Silver (06:36.472)
There’s a lot of people who listen to this show and a lot of guests that I’ve had who do storage facilities. I’m curious about maybe some of these other plays. What about maybe RV parks or mobile home parks? Would that be able or not?

Steve Mariani (06:49.056)
Great question. Here’s the criteria surrounding those. Transients, which means they’re contracted for less than 30 days. As long as the majority of the income comes from transients, then they could be eligible. Again, I think it, I believe the rule is 51 % of their income comes from in and outs and not long-term leases. Those trailer parks and RV parks could be eligible.

Dylan Silver (07:16.342)
Hmm. I wonder about Airbnbs then.

Steve Mariani (07:20.596)
Well, I don’t know. Airbnb’s, well, it comes down to are you servicing it and doing, are you actively involved in it? If it’s just a piece of real estate that a management company handles for you and you’re collecting fees, then no. But if you’re actively, we’ll relate this to a hair salon that rents out 30 chairs. Okay.

In theory, that’s rental income on those chairs. But if they’re servicing, they’re providing their products or if they’re taking their appointments down or if they’re providing services in any way that could be considered a business and not necessarily investment income. Same thing with executive centers. Those are possibly eligible because of the services that the landlord or owner provides.

Dylan Silver (07:47.703)
Yeah.

Dylan Silver (08:07.886)
Now I want to pivot a bit here, Stephen, ask you about 504 versus 7A. We were talking a little bit about this before the show here.

Steve Mariani (08:15.914)
Sure. Great question. Either program, both of the programs offer a 25 year term with 10 % down. So note that the, the 7A program is a single lender. It’s going to be a little bit higher interest rate, probably just for comparison terms, nine and a half ish, maybe 9%. It will be 25 years. It will only have a three year prepayment penalty. Five, three, one for the first three years. Okay. That’s the 7A program, which is the one.

You know, if the interest isn’t a huge factor, that’s typically the program that serves our clientele better versus the 504. The 504 will have two lenders. It will be a little bit better interest rate. The current rates are around, I want to say 6.3 or 6.5 right now, all in rate. So you’re comparing that 6.3 to nine, but there are two lenders, two levels of underwriting and a few more hoops that you have to jump through.

But in many cases, it is cost effective. But both programs, like I said, what we care about are the 25-year terms and the 10 % down. Now the 504 typically also comes with a much longer prepayment penalty. How the 504 works is, know, 504 is what we’ll utilize to get us over the $5 million cap because only 40 % of a 504 loan counts against their SBA top limit. Each person gets a limit on SBA of $5 million.

So if we’re exceeding the 5 million, but there is real estate involved, then we’ll usually move that over to a 504 to reduce their SBA exposure and allow more on the Goodwill and 7A side. But both programs are excellent. Depending upon the specifics of each one, each one could do the job. 10 % down, 25 year term.

Dylan Silver (10:03.904)
This is maybe a question you haven’t gotten before. I’m curious about the demographic of people using SBA. Is it a lot of people with very established businesses? Are you seeing any younger people getting involved in this space? Is it maybe even, I would say, I don’t want to say bias, but maybe some level of that against kind of the younger crowd because you have to have established and maybe there’s a lot of hoops to jump through and so on and so forth?

Steve Mariani (10:27.424)
Great question. We’re working with a young couple right now in their 20s that have very little to no money down. And they’re bringing in personal investors for their down payment. Their acquisition is $2.4 million. But they have direct industry experience. It is a therapy clinic. They have direct industry experience and great credit, just very little down payment. So what they’re doing is we’re bringing in investors of theirs.

that are going to own a small percentage of their corporation and we’re going to get that deal done. So it does benefit younger people. There was also a lot of junior PE people that were out there looking for business that do have investors behind them. And there are structures in the SBA that allow for investor money and protect the investors.

Dylan Silver (11:16.494)
I want to branch off that and talk about the criteria to get qualified. think of, know, my mind automatically goes to construction loans and single family homes and so people need credit and they need history of paying large debts. If they are younger, oftentimes I sometimes get frustrated because I say, man, people need like a blood sample to get a single family home where I’m from in northern New Jersey originally, although I’m out here in Dallas. But it sounds like there may be some different because

Steve Mariani (11:42.112)
All right.

Dylan Silver (11:46.402)
You’re mentioning experience in the field and then as well as a lot of the other factors credit of course. But could you break some of that down for the audience here?

Steve Mariani (11:56.507)
Sure, when we’re talking about SBA, we’re not typically talking about fully collateralized loans as we are in the commercial real estate industry that we talked about. 504 must be fully collateralized. All real estate equipment must be hard assets. Not so much in the 7A. 7A is goodwill. Like I just described, the young couple that we’re working with now, it’s in a lease facility.

There’s no real estate involved. It’s $2.4 million of all goodwill. So now they have very little equity in their homes, but they do have great credit and they do have a resume. So basically the three things we’re going to discuss with any potential client, the three things required are going to be the down payment ability, which we kind of touched on. I need a strong resume. The stronger the resume, the more it helps us in our industry and good to great credit.

If they don’t own anything else in the world, they’re a good candidate for the SBA program. And those are the people that we help every day. No matter their age, we help many young people.

Dylan Silver (13:02.19)
I think it’s interesting to touch on this because you mentioned storage facilities. I think a lot of people who are listening to this will say, can use an SBA loan to buy storage facilities. And then as far as the resume, if they’ve already done maybe two deals in the storage facility space, they’ve probably got excellent credit. And now they’re thinking, OK, well, I can go, I have this other route, which I’ve really never thought of before.

I wouldn’t be surprised if more people got involved into that space. I’m wondering, Steve, if you’re seeing any trends as far as real estate investors and brokers or people in the space, the types of products that they’re using the SBA for. you seeing a lot of storage facility? What’s maybe a hot item that people are using this for?

Steve Mariani (13:47.946)
So we’re not seeing a lot. That’s a rule that changed only within the last few years that allowed those because they were typically ineligible due to the investment criteria. But SBA did start allowing them. So that’s getting bigger and bigger. I am starting to hear about some storage facility transactions happening. What we always want to explore is what’s available conventionally and what’s available SBA. And that’s the first conversation I’m going to go through because it is an advantage for them to go conventionally.

Dylan Silver (13:57.175)
Yeah

Steve Mariani (14:16.864)
If they can get a typically what we see around here on a conventional level is 10 % down, maybe 15 % down, but on a 20 year term with a 10 year balloon. So a lot of, especially longer term investors, do they want to have to deal with the 10 year balloon or anything like that? Well, they can just set this up and then move on to their next transaction a lot of times. you know, what, like I said, if they can qualify for conventional, you know, we’re going to be.

looser than conventional, no question about it. If they can’t qualify for conventional, they probably can qualify for SBA, you know, depending upon the criteria. And that’s really going to be the difference. You know, we’re getting off at least in a 504, 40 % is going to be guaranteed by the government, but there’s going to be little exposure because it is fully collateralized with the real estate in that specific transaction.

Dylan Silver (14:53.485)
Hmm.

Dylan Silver (15:10.414)
Yeah, I I’m shocked that there’s another option for folks if conventional is giving some issues. Steve, do want to know, we are coming up on time here. Where can folks go maybe to learn more about SBA or to reach out to you or get in contact with you?

Steve Mariani (15:16.34)
Okay.

Steve Mariani (15:23.296)
So what?

Steve Mariani (15:28.736)
Sure, we’re at EZSBA.com. That’s our website. We’ve been around, like I said, 30 years. There’s a wealth of information on there. You can get pre-qualified through us. There’s a lot of options and lot of avenues of information on our website. I put out informational sheets. I also put out a monthly newsletter with all the latest changes on SBA for my brokers throughout the country. We have a following of a few thousand brokers that monitor.

Like I said, what I do is I interpret any of the new rules into what affects actual transactions. And that’s the information that I put out so that the street can understand what the, you know, when the SBA makes a change, could be 25, 30 changes and it could be 40 different pages. So that’s the interpretation that I’ve determined. And then I put out the information to the public. So any of this can be found on there. You can go, I think right on our homepage right now is what I put down as the SBA

Dylan Silver (16:13.87)
Yeah.

Steve Mariani (16:27.38)
broker cheat sheet. And the reason I put that in there, it’s kind of a summary because June 1st, a lot of our SBA rules changed. So I put out this simple broker cheat sheet right on our homepage for every broker in the country to get at least a quick understanding of what’s changed and what affects your transactions.

Dylan Silver (16:45.706)
lot of new information for me and think a lot of investors will be excited to hear about this option. Steve, thank you so much for the information and for coming on the show here today.

Steve Mariani (16:56.874)
Sure don’t, absolutely. One last note, when it comes to your investors, like I said before with this young couple, they can be investors and be completely protected. No guarantees or anything else. So if we are talking to investors, there are avenues that they can help people get into business and benefit. But no, I appreciate the time. I appreciate you sharing the information and you know, the more people we can help the better.