Q&A with SBA Lender John Tonjes, Midwest Business Capital
Tell us about Midwest Business Capital.
Midwest Business Capital (MBC) is a division of United Midwest Savings Bank (UMWSB), a federally chartered financial institution. We have been in operation under the UMWSB umbrella since 1999. We are a national lender that specializes in SBA and USDA commercial real estate lending.
MBC is one of twelve financial institutions in the country to be an approved SBA 504 pooler / originator and we are a preferred lender for the SBA 7a program.
What is the SBA 7(a) program?
The SBA 7a program is a government guaranteed loan with a maximum loan amount of $2,000,000. As of today the SBA will guarantee 75% of the loan amount. In order for a borrower to qualify, the borrower’s business must occupy at least 50% of the commercial real estate to be financed. The program can be used for refinancing, acquisitions and construction. MBC uses the program to provide the following typical loan structures:
-Up to 90% LTV (loans in excess of 80% LTV typically require additional collateral)
-25 year term and amortization for real estate related assets and improvements
-10 year term and amortization for equipment, working capital and business going concern
-Rates ranging from Prime + 2.25 to Prime + 2.75% (as of 8/24/2010, Prime is
-The prepayment penalty is 5-3-1
-The SBA guarantee fees:
-Up to $150,000 2% of the guaranteed portion
-$150,000 - $700,000 3% of the guaranteed portion
-$750,000 - $2,000,000 3.5% of the guaranteed portion
What is the SBA 504 program?
The SBA 504 program can be used for the acquisition of commercial real estate. The loan structure consists of a conventional 1st mortgage that is typically 50% LTV. The second mortgage accommodates the remaining loan requirements up to an aggregate loan amount of 90%. The conventional first mortgage is retained by the bank. The second mortgage is held by the bank for a 2-3 month interim period and is then purchased by the SBA. The lender is left with the 50% LTV loan.
-Up to 90% aggregate LTV (single purpose properties are typically capped at
-The first mortgage typically has a 25 year term and amortization
-The second mortgage has a 20 year term and amortization
-The first mortgage typically adjusts every 5 years at 3.75 – 4.25% over the 5-
year Swap rate
-The second mortgage is fixed for the life of the loan; the rate as of today is
-The first mortgage typically has a 5 year prepayment penalty
-The second mortgage has a declining 10 year prepayment penalty
-The SBA fee is 3% of the second mortgage loan amount
What their pros and cons?
SBA 7a pros:
-Typically a faster turn-around time if working with a preferred SBA lender
-The loan only has a three year prepayment penalty
-The loan can be used for refinancing as well as acquisitions
-The loan can be used for non-real estate sources and uses
SBA 7a cons:
Many banks only provide quarterly adjustable 7a loans. However, some do offer fixed rate 7a loans.
SBA 504 pros:
The first mortgage is typically fixed for at least 5 years and the second mortgage is fixed for the life of the loan.
SBA 504 cons:
-The process of obtaining a 504 can be more time consuming
-The program may not be used for refinancing or non real estate assets
-Ten year prepayment penalty on the second mortgage
What are some benefits of SBA financing over a traditional bank loan?
The SBA guarantees 75% of the 7a loans and they purchase the second mortgage on the 504 loans. The banks are able to greatly reduce their exposure to loss. As a result borrowers can obtain higher leveraged loans and banks are willing to be more creative in their underwriting practices.
What separates you from other SBA lenders?
Midwest Business Capital is a national Preferred SBA Lender (PLP). As mentioned previously, we are one of twelve lenders in the country to be an approved SBA 504 pooler / originator. We have over 10 years of SBA lending experience.
Can you provide a an example of a recent SBA loan you funded?
The week of 8/16/2010, Midwest Business Capital provided funding for a $1,850,000 acquisition of a bowling center in Fort Lauderdale, Florida. MBC provided a $1,495,000 (81% LTV) SBA 7a loan to complete the acquisition. The interest rate on the loan was 6.00% and the loan had a 288 month term and amortization.
What properties will you NOT lend on via SBA?
Gas station / C-Stores
Mobile home parks
What are the latest developments in SBA lending?
Currently there is legislation in Washington that, if approved, may include some or all of the following provisions.
-Increase of the SBA 7a program from $2,000,000 to $5,000,000
-Implementation of the 90% SBA guarantee for 7a loans
-The fee waiver for SBA loans
-2 year extension of the SBA 504 pooling program which provides for a government guarantee on the first mortgage of SBA 504 loans. This will create secondary markets willing to purchase the guaranteed portion of the first mortgage. This will further reduce the risk to lenders and should
stimulate the 504 lending environment.
How much can brokers make on SBA loans?
It varies from lender to lender. MBC will pay up to 2% currently.
Can you tell us about your USDA program?
We are an active USDA lender. In May of 2010 we were one of a handful of banks to be invited to Washington DC to participate in a round table discussion with Secretary of Agriculture Tom Vilsack. We will do USDA loans up to $3,500,000 dollars. Our maximum LTV will typically be 80%. They typically have a 25 year term / amortization and typically float quarterly over prime. Typical spreads over prime are 2.25 – 2.75. The prepayment penalty is typically 5% for 5 years.
Do you have an outlet for non-SBA loans such as investment property financing?
How did you end up at Midwest? What is your background?
I started lending in the dental / medical industry with a national dental / medical lender in 1998. From 2000-2002 I was a specialized lender providing funding for the cell phone tower industry. I joined Midwest Business Capital in 2002.
What changes in SBA financing and/or financing in general are you seeing post-financial crisis as compared to before?
SBA loans have become much more attractive since 2006. This can be tied to two primary variables.
1. Prime has dropped from 8.25 in 2006 to 3.25. As a result rates to borrowers have dropped to 5%.
2. There are far fewer conventional lenders competing in the market place. The conventional lenders that are lending are providing much lower LTV loans. If a business owner is seeking an 80-90% LTV loan, the SBA and USDA are often times the best option.
Thanks for the interview John. How should borrowers/brokers reach you to discuss a loan?
Executive Vice President
Midwest Business Capital
5038 Reed Rd.
Columbus, Ohio 43220
Phone (614) 638-1995
Fax (614) 453-0624
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