Category Archives: Consulting & Planning

Is It Time to Refinance Your SBA 7a Loan?

Do you have a Small Business Administration SBA 7a loan that is at least three years old?

Have you been meeting your business plan goals and objectives?

Now is a good time to examine what the options are for refinancing your SBA 7a loan.

Timing an SBA 7a Refinance

• Three years: SBA 7a loans have prepayment penalties for the first three years. Therefore, we advise most borrowers to wait until the three years have elapsed before seeking refinances. There are a few select cases, however, where the prepayment penalties are worth it.

• Do you have evidence of meeting profit targets? If you are looking to refinance a loan, lenders need evidence that your business is largely on target. We find that lenders are willing to overlook the market disruptions of COVID, especially during mandatory lockdowns. Other than that, your financial statements should demonstrate sustained profitability. In addition to financial statements, lenders and appraisers typically require evidence from third parties. These can include STR reports or sales tax bills based upon revenue receipts.

• Debt Coverage:  The most important factor in finding affordable, reasonable loans is your current debt coverage. Lenders are not impressed just with the value of your property. In this somewhat volatile economic milieu, demonstrating the ability to pay back loans and having capital reserves is key.

Debt Refinance Possibilities and Other Structures:  We can help you determine the best next steps. It might be to refinance existing debt, retire part of it or even restructure it. We can help evaluate your financing and cash flow needs. You will have a better sense of what type of financing options exist and choose the best one for your business.

If you would like to discuss your SBA 7a loan or any other business plans, feel free to contact our team.  We can conduct a business evaluation, reach out to our lenders, offer advice on bidding and secure financing for you. An initial business evaluation is complimentary.

Do I Really Need a Survey?

What is a survey and do I even need one?

Whether you are buying or refinancing a current business that includes commercial real estate, you really do need a current survey. In fact, most lenders and title officers require a survey.

What Does a Survey Do and Why is it so important?

• Boundaries: The basic purpose of a survey is to show a detailed drawing of your entire property with all of its buildings and improvements. The survey will clearly delineate where your property begins and ends. The survey will be on record and show that you have clear legal ownership of everything within these boundaries.

• Encroachments: An encroachment indicates a place where ownership of a property crosses a boundary line. So maybe there is a shared septic tank with the neighbor and part of that infrastructure is on your property. The survey would show that encroachment and the title company would “insure around that”.

• Easement:  An easement is a section of your property that is carved out for somebody else’s access and use, typically a utility company. So if you have buried cables or an alleyway, sometimes there are easements here. You own the full property, but the easement designates a place that a third party has access to and sometimes even control over. Again, these would be clearly labelled on a survey and title insurance insures around this.

How much time does it take and how much does a survey cost?

• Don’t leave me hanging; what does it cost and how long will it take? Surveyors are professionals. They have to determine the scope of the survey, do research about the boundaries of your property, search city or county records for previous surveys, go to the site, draw the survey and obtain approval from the title officer and the lender of their final survey. Therefore, a survey typically takes at least four weeks and sometimes much longer in different marketplaces and different seasons. The costs can vary but are typically under $10,000, depending on the complications of the building and prior documentation.

• ALTA surveys: There are different types of surveying tools. However, we recommend that borrowers purchase an ALTA (American Land Title Association) survey. These surveys conform to the industry standards and even have a standard document (Table A) which lenders, title officers and surveyors use to communicate about what information they require.

• Are there any ways to save money and time?  The best way to save money and time is to make sure that a relatively current survey has already been done. So if you are refinancing and you never got a survey when you bought your property, arrange for a survey right now! If you are buying a property, ask the seller if there is a current or even an old survey. We often are able to contact the previous surveyor and obtain an updated, re-certified survey, which will save lots of time and money.

If you would like to discuss surveys, title issues, closing, refinancing and purchasing or any other business plans, feel free to contact our team.  We can conduct a business evaluation, reach out to our lenders, offer advice on bidding and doing your due diligence and secure financing for you. An initial business evaluation is complimentary.

Purchase Sale Agreements (PSA) Done Right

When you purchase a land and its business, you must create a purchase sale agreement (PSA).

What does this PSA need to contain to satisfy lenders, appraisers and attorneys?

Purchase Sale Agreements must have:

  • The correct name of the buyer and the seller. This may seem obvious, but often individuals make offers on purchases. However, their business will ultimately be buying the property and taking out the loan. So the buyer should be the business and not the individual. But don’t worry. This occurs so often that the parties typically amend the PSA later (see below).
  • The purchase price. The appraiser and the lenders (and the SBA if this is an SBA guaranteed loan) need to know how much you have agreed to pay for the property and/or business. This number will affect the amount of the loan. In addition, if an appraisal shows the value of the property to be less than the PSA, everybody will have to go back to the drawing board to renegotiate.
  • The date the purchase sale agreement expires. As a buyer, give yourself enough time to secure financing and to close the deal. Simple undeveloped real estate can close more quickly than buildings and businesses that require more complex appraisals and due diligence.

When you need to make changes…

A PSA is the first start of the purchase and getting financing. They are rarely perfect. It’s fairly straightforward to make changes to satisfy all of the parties. Here’s a few that occur often.

Typical Amendments:

• Assigning the Loan: If the original PSA shows the buyer (a person, not a business), then you will need to amend the PSA. This amendment is called an “assignment” and assigns the loan and the buying of the property from the individual to the business or the borrowing entity.

• Price Breakdown: Many times, lenders and attorneys want the purchase price to be broken down. How much is the land worth? What is the value of furniture, fixtures and equipment? What about inventory? Lenders often have preferences about price breakdowns or allocations, so this is another area that is often amended later in the underwriting process.

• Extending the PSA: Certain components during underwriting can delay the loan and the closing. These include lack of a survey, difficulties obtaining documents from buyers and sellers and even discoveries of issues during the environmental site assessment. When these bumps in the road occur, the buyer and seller need to agree to extend the PSA just a bit.

If you would like to discuss financing your future business plans, feel free to contact our team.  We can conduct a business evaluation, reach out to our lenders, offer advice on bidding and secure financing for you. An initial business evaluation is complimentary. We have a network of lenders for acquisitions, refinances and construction projects.

The Evolving World of Appraisals: What You Need to Know

The world of appraisals is undergoing significant changes. Understanding these shifts is crucial, whether you are buying, selling, refinancing or building. Your lender will typically require an appraisal. Being informed about the process and the recent changes can help you navigate it more effectively.

The New Landscape of Appraisals:

  • Debt coverage vs. loan to value (LTV): Appraisers and lenders have shifted their focus from primarily relying on LTV. LTV is the ratio of the loan divided by the appraised value. Instead, the appraisers and lenders are emphasizing total debt coverage. This approach assesses what percentage of your expenses are going to be tied up in financing costs. They will also evaluate post-closing liquidity and cash flow.  
  • Decreased reliance on business potential. When determining the value of your property, lenders are now more conservative, especially for new businesses. They will not loan more than the appraised value of the property, unless additional collateral is considered. For new ventures, appraisers tend to be very cautious.
  • Tax returns vs. financial statements. Some government guaranteed lenders are instructing appraisers to focus on tax returns to uncover the “true” financial picture, rather than relying solely on financial statements. Since tax returns and financials break down expenses and revenue differently, and business owner often file their taxes in a way to minimize tax liabilities, there can be discrepancies. At GRP Capital, we compare tax returns with financial statements to determine the true profitability of a business. Further, we work with appraisers to help align their conclusions. We can collaborate with your accountant to reclassify expenses and revenue to enhance the appraised value.
  • Appraising a business: As-is, As-Complete and As-Stabilized: Appraisers will evaluate your property and business in three ways: as-is (without any renovations or changes); as-complete with improvements (including completed renovations and operational changes) and as-stabilized (considering a future alignment operational efficacy and stabilization). Understanding these distinctions can help you plan your appraisal strategy effectively.

Planning for an Appraisal Site Visit

• For Sellers and Owners: First impressions matter. If you are the seller or the current owner seeking a refinance, ensure your property is clean, well-maintained and presentable. Appraisers want to inspect all areas including public areas and “back of the house” sections. Providing requested documents promptly, such as current financials, building information and surveys, can also positively influence the appraisal process.

• For Buyers: Buyers should communicate their business vision to the appraiser clearly. Highlight any new ideas for enhancing revenue and controlling expenses, planned renovations and your strengths in ownership or management of similar businesses. This can help the appraiser see the full potential of the property.

• A Note on Property Condition Reports: Borrowers can arrange for a PCR (Property Condition Report) during the bidding stage, even before a Purchase Sale Agreement is in place. Unlike appraisals, a PCR focuses solely on the property’s condition, providing honest and independent feedback on what maintenance and renovations are needed in the immediate, short term and long term future.

If you’re ready to discuss financing your future business plans, our team is here to help.  We offer complimentary initial business evaluations. We have a network of lenders for acquisitions, refinances and construction projects. Our team is ready to guide you through the entire process.

How to Prepare for an Appraisal

Whether you are buying, selling, refinancing or building, your lender will typically require an appraisal. What do you need to do to prepare for the appraisal? What is changing in the world of appraisals?

We’ve got your answers!

When a lender agrees to begin the underwriting process on a new loan, they will order the appraisal. The lender chooses the appraising company, often in a blind bid process. This means that they let several companies submit their fees and their turnaround time. The lenders then choose which company they want, based upon their budget and timeline.

We have noticed that there are certain areas of the country that do not have enough appraisers. Therefore, appraisal timelines have increased. Make sure you can account for the time it takes an appraisal as you are making your business plans.

The Purpose of an Appraisal:

  • Determine value of the property: Essentially lenders have to determine the value of your property and its potential as a business or home base for a business. Lenders will not loan money greater than the value of the property.
  • Appraisals also consider the business plan going forward, evaluating the financials, management and even market conditions.
  • Consider all types of values:
    • The appraiser will determine the value of a property and business as-is (with no renovations or changes in business practices).
    • An appraisal also delineates an enhanced value (with completed renovations and even changes in operations, including marketing).
    • Finally, the appraiser will calculate how much a property and business would be worth if it had to be sold very quickly due to the borrower’s inability to make loan payments.

Prepping for the Appraisal:

• Instructions for Sellers: If you are the seller, you want your property to appraise well, because you want the buyer to to be fully funded. So make sure your property is clean and well-maintained. Be prepared to show off your property to your appraiser. They will want to see samples of all areas, including public areas and “back of the house” sections. Be helpful about turning in documents so the appraiser can write their report. These documents will include current financials, information about the building, and surveys, among other requests.

• What about Borrowers? Borrowers need to be prepared to meet with the appraiser to tell them their vision. Do you have new ideas do you have for enhancing revenue and controlling expenses? What renovation are you seeking funding for? What strengths do you personally have in ownership and/or management of similar businesses and properties?

• A Note on Property Condition Reports: Borrowers can arrange for a PCR (Property Condition Report) even during the bidding stage, before there is a Purchase Sale Agreement. A PCR does not examine the finances but gives honest and independent feedback to the borrowers on the property’s true condition and what maintenance and renovation needs to be done immediately, in the short term and the long term.

If you would like to discuss financing your future business plans, feel free to contact our team.  We can conduct a business evaluation, reach out to our lenders, offer advice on bidding and secure financing for you. An initial business evaluation is complimentary. We have a network of lenders for acquisitions, refinances and construction projects.

Fed Flag lower interest rate

Fed Lowers Interest Rates: Now What?

Today was a significant day as the Fed lowers the Interest Rate.

What does this mean for you, as a business owner?

What is the Fed and what do they do??

The Federal Reserve (often called “the Fed”) is tasked with monitoring the economy.

They control monetary policy (how much money is in circulation). And most importantly, they set the prime lending rate. This rate then serves as a benchmark for all loans, commercial and residential.

The Fed is watching major economic trends, specifically employment rate and inflation rate.

When the Fed lowers interest rates, they are stimulating growth. The Fed’s lower rate indicates a slowdown of inflation. In addition, the rate is designed to boost hiring.

A lower interest rate brings certain advantages, including:

  • Loans will now be cheaper. The cost to borrow money will now be cheaper by about .5%. That adds up!
  • Demands for new loans will now increase. So your project needs to show strength to lenders to move you to the front of the queue.
  • Now is a very good time to consider a refinance, especially for high interest loans.
  • Fixed versus variable interest rates. Rates probably will not go down further (by much) in the short term. It might be better to lock in rates now.
  • Lower rates don’t make everything perfect. A distressed property is still a distressed property and will still be difficult to finance.

Be realistic about business expenses. Simply put, if you are contemplating a purchase of a new business or refinancing a maturing note, you need to know how much a loan will cost you. Fortunately, our GRP Capital team can help you look at options. We will examine possible loan terms, so you can know the nuts and bolts. What will the monthly payment be? Is that a reasonable price to pay?

Variables to Consider about all Loans:

• Interest Rate: What is the rate and is it fixed or variable? Be sure to understand how your lender calculates a variable interest rate. Is there a floor or a ceiling?

• Prepayment Penalties: Many loans have a prepayment penalty if you exit the loan quickly. If you are looking at a loan for a short term, be sure you consider this aspect. It may not make sense to exit a loan when you consider the penalty.

If you would like to discuss loan options or any other business plans, feel free to contact our team.  We can conduct a business evaluation, reach out to our lenders, offer advice on bidding and secure financing for you. An initial business evaluation is complimentary.

Money growing

Looking for Loans when Interest Rates are High

We at GRP Capital are not in the business of predicting the future. However, the Federal Reserve has indicated that interest rates will likely continue to be on the higher side through the summer and maybe longer.

How do these higher interest rates affect you? More importantly, what are the best business decisions you can make right now?

Are you looking to purchase an existing business with commercial real estate? Or do you already own a property and are facing an upcoming loan maturity? Are you trying to figure out the timing of a refinance or considering remodeling or reflagging, rolling that into a refi?

Factoring Interest Rates in Your Business Decisions:

  • Be realistic about business expenses. Simply put, if you are contemplating a purchase of a new business or refinancing a maturing note, you need to know how much a loan will cost you. Fortunately, our GRP Capital team can help you look at options. We will examine possible loan terms, so you can know the nuts and bolts. What will the monthly payment be? Is that a reasonable price to pay?
  • Determine your Debt Coverage, not just a property’s Loan to Value: Many business owners and borrowers get very excited about appraisals and how properties are priced. Indeed, lenders do want to see a property with a value that is greater than the loan. However, for certain businesses, especially hospitality, lenders are no longer satisfied with appraised values. They are more concerned with what we call DSCR, which is Debt Service Coverage Ratio. How much of the value of the business and of your own net worth will be on the hook to pay for financing? Is this a reasonable figure? Is this an appropriate risk for the lender?
  • Fixed versus variable interest rates: It might make sense to bet on interest rates going down in the future, but that is a risk. On the other hand, choosing a long-term higher interest rate can also be costly.
  • Bridge loans. Sometimes a transaction needs to occur quickly. This is especially true if the seller is courting multiple buyers and the first one in the gate gets the deal. Basically, bridge lending offers a quick, temporary solution, but sometimes with a high short-term interest rate. It might be a viable option right now when interest rates are already high.

Variables to Consider during Periods of Higher Interest Rates:

• Interest Rate: Duh! What is the rate and is it fixed or variable? Be sure to understand how your lender calculates a variable interest rate. Is there a floor or a ceiling?

• Prepayment Penalties: Many loans have a prepayment penalty if you exit the loan quickly. If you are looking at a loan for a short term, be sure you consider this aspect. It may not make sense to exit a loan when you consider the penalty.

If you would like to discuss loan options or any other business plans, feel free to contact our team.  We can conduct a business evaluation, reach out to our lenders, offer advice on bidding and secure financing for you. An initial business evaluation is complimentary.

Hospitality Loan Options

What is happening in the world of hospitality loan options? Which road should you take?

Are you looking to purchase an existing hotel? Or do you already own a property and are facing an upcoming loan maturity? Are you trying to figure out the timing of a refinance or considering remodeling or reflagging, rolling that into a refi?

Lenders have become more selective about hotel loans. In addition, borrowers have to contend with current high interest rates.

What are the best ways forward?

Different Loan Products to consider:

  • Conventional Loans: There are a few lenders who offer conventional loans, often at fixed prices. However, these loans are typically reserved for the highest echelon of hotels and for larger loan amounts. They also tend to require greater equity injections.
  • USDA Rural Hotel Loans: If your property is not in the heart of an urban area, you may be eligible for a USDA loan, designed to support businesses outside of cities. These loans often have variable interest rates but are adjusted infrequently (some as few as every five years).
  • SBA (Small Business Administration): SBA loans are in many cases the most affordable loan products for hospitality owners with properties of all types, from economy to luxury. Their variable rates mean that when interest rates do eventually go down, borrowers will benefit. In addition, GRP Capital has relationships with many preferred lenders, which decreases the time to close.
  • Bridge loans. Sometimes a transaction needs to occur quickly. This is especially true if the seller is courting multiple buyers and the first one in the gate gets the deal. Bridge lending offers a quick, temporary solution, but sometimes with a high short-term interest rate.

Special Considerations for Purchasing a New Hospitality Business:

• Does a New Purchase Fit into Your business plan? There are hospitality businesses that are for sale now. It could be that the seller is ready for a new project. Or it could be that the seller’s note is coming due and they, too, are weighing their own options. Talk to us about the range of interest rates that you could be paying for a new loan. Then determine if this is affordable. We highly recommend doing this before signing a PSA (Purchase Sale Agreement) or paying any earnest money.

• Determine the True Expenses of a New Business: New businesses have many expenses. We always critically review the seller’s financial statements with our clients. It’s important to understand which fixed costs buyers will be taking on and which costs were ones that will not recur. Of particular interest are the insurance costs, the labor costs, the franchise agreement (which we can give guidance on) and of course the actual cost of the loan.

If you would like to discuss hospitality loan options or any other business plans, feel free to contact our team.  We can conduct a business evaluation, reach out to our lenders, offer advice on bidding and secure financing for you. An initial business evaluation is complimentary.

Options for an Upcoming Loan Maturity

Do you have an upcoming loan maturity? If one of your business loans is due to be paid off soon, now I is the time to figure out the best options going forward.

What To Consider Regarding Loan Maturity

• What Will Occur at Maturity? Will your mortgage be fully paid off? On the other hand, will you have a large balloon payment due? Or is this loan a seller note that is now coming into play? Or will the loan now be only partially paid, but the bank now has discretion to change the structure and the interest rate of the loan?

• What was the Purpose of the Loan? Is the loan that is in loan maturity your primary business mortgage? If so, the maturity of the loan may mean you owe the property outright. That can be beneficial, although you will not be able to claim the previous mortgage expenses. If the maturing loan is a small part of your debt, it might be best to completely pay off this loan.

• Maturing Loan Creates Opportunities:  You can refinance existing debt, retire part of it or even restructure it. We can help evaluate your financing and cash flow needs. You will have a better sense of what type of financing options exist and choose the best one for your business.

If you would like to discuss loan maturity issues or any other business plans, feel free to contact our team.  We can conduct a business evaluation, reach out to our lenders, offer advice on bidding and secure financing for you. An initial business evaluation is complimentary.

Multifamily Loan Product Finances 100% of your Renovation Costs

We are very excited to offer a multifamily loan product that is perfect for purchases of multifamily properties.

Many purchasers of multifamily properties have renovation and improvement plans. Their goal is to improve the property and therefore increase the rental income as a value-add investment. If you are in a similar situation, this multifamily loan may be the perfect fit.

Cover Your Full Multifamily Loan Cost of Renovations

• Loan to Value vs. Loan to Cost: Loan-to-value (LTV) compares the loan amount to the expected market value of the completed project. On the other hand, loan-to-cost (LTC) compares the financing amount of a commercial real estate project to its costs. Lenders are typically limited to a maximum LTV/LTC or a a combination of both. However, this multifamily loan product will cover up to 100% of the renovation cost. This delivers a higher overall leverage for the borrower, while at the same time maintaining the desired total leverage parameters for the lender. Structuring the loan in this innovative way benefits borrowers and lenders alike.

• Why Should I Care about LTV/LTC ?The LTV value affects your rates and your collateralization needs. Lenders look at the total value of the property to determine how much money they are willing to loan. Getting to their sweet spot means more lenders want to offer financing. When we structure this loan and pitch your financing needs to our lending partners, they respond positively. They like the LTV and are willing to come in with extra financing for worthy renovation projects. Lenders are especially keen on renovations that will enhance future profitability and stabilize the property’s value.

• Call Us Before you make a Bid:  If you can swing it, let us know at GRP Capital when you have your eye on a multifamily property. We can evaluate your financing needs. You will have a better sense of what type of financing you will be able to acquire. In this way, you can use the information prior to even making an opening bid on the property.

If you would like to discuss this multifamily loan product with us, feel free to contact our team.  We can conduct a business evaluation, reach out to our lenders, offer advice on bidding and secure financing for you. An initial business evaluation is complimentary.