SBA Loans & Leasebacks

Business Finance
SBA Loans & Leasebacks

Published: November, 2018

Many small businesses are advised not to own the business and the real estate where it operates under the same entity. This “leaseback arrangement” can reduce liability and provide several tax benefits while allowing for the buildup of equity and property value separate from the operating company.

So how can the land owning “non-operating” business still be eligible for the lower down payment, longer payment terms, and easier qualifying criteria of a SBA loans?

The SBA has a solution for this commonly faced dilemma. It’s called an “Eligible Passive Company” or “EPC”. Typically, the owners of the EPC are the same as the small business, however in some cases, financial requirements may allow for different ownership structures.

In order to qualify for this exception, the EPC must accept liability for the SBA loan along with the small business. As well, SBA policy will determine the rental payments until the loan is paid back. Essentially, the rental payments should not exceed the cost of the SBA loan payment + property taxes + property insurance + property maintenance.

With this special arrangement, a small business is able to own their real estate under one company, while keeping their actual day-to-day operations under another company. As a result, both entities are able to take advantage of lower down payments, longer repayment terms, and easier qualifying criteria than conventional bank loans for real estate financing.

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