How Complex Deals Can Still Secure Debt
Privately held commercial bank Sunwest explains how it makes complex commercial deals work.
A recent study found that half of all deals that fall out of escrow have difficulty meeting loan requirements. While there is ample capital in the market today for a variety of deals, some borrowers still find securing debt challenging. For borrowers unable to secure a loan through a traditional lending source, there are options. Private lenders have become a popular source of capital for deals that don’t meet standard requirements, particularly with SBA loans.
“The small business administration lending platform can assist borrowers who do not qualify for a conventional loan’s underwriting requirements,” Carson Lappetito, president of Sunwest Bank, tells GlobeSt.com. “The SBA programs can be used to help finance a variety of transactions including real estate acquisition, commercial equipment, business acquisitions and partner buy-outs. The Small Business Administration provides a partial guarantee of the loan or a subordinated note to help augment the credit of the borrower.”
The loan program works with a pretty broad swath of borrowers, from family offices to real estate developers. We believe in operating in specific niches where we can provide our clients with deep industry expertise,” says Lappetito. “Our typical lending size is $5 million to 15 million and we provide depository services to institutions of many sizes across the Western US.”
While there are benefits to securing the debt through this source, there is also a higher cost of capital. “There is a higher cost of capital for borrowers that do not meet standard requirements based on the increased risk of the loan,” says Lappetito. “This typically comes in the form of a higher interest rate or loan fee. In terms of SBA loans, there is also an additional SBA guarantee fee, which is paid to the SBA for the guarantee provided to the Bank.”
For borrowers with complicated deals having trouble securing debt, Lappetito says that it is important to understand why and the find a solution and lender that can work to secure the deal. “Once you identify the issue causing the difficulty in securing financing, you can work to improve or mitigate that risk,” he says. “Sometimes that means paying down debt over time to reduce leverage, bringing on an equity partner to support the business, using an SBA product to mitigate risk or providing additional collateral such as a lien on outside real estate or other assets.”