IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog article has been provided by Mihir Patel of American Momentum Bank (www.americanmomentum.bank).
SBA 7(a) Landlord Lease, Waiver and Subordination: What You Need to Know
If you’re a small business owner looking to secure financing through the SBA 7(a) loan program, you may need to obtain a landlord waiver and subordination from your commercial landlord. Here’s what you need to know about these requirements:
What are the term requirements for a lease?
The lease must have a term that extends through the term of the SBA 7a loan. The lease can extend for the entire term OR have an initial term with options to renew. For example, if your SBA loan has a 10-year term you are able to do a 5-year lease with an option to renew for an additional 5 year term.
What is a Landlord Waiver?
A landlord waiver is a document that your commercial landlord signs to acknowledge that you are pledging their property as collateral for your SBA 7(a) loan. The waiver gives your lender permission to place a lien on the property in the event that you default on the loan.
Why Do You Need a Landlord Waiver?
The SBA requires a landlord waiver as a condition of funding for any 7(a) loan that involves the use of leased property as collateral. This ensures that the lender has the right to seize and sell the property in the event of a default.
What is Subordination?
Subordination refers to the order in which liens are paid off in the event of a default. A subordination agreement is a document that your landlord signs to acknowledge that their lien on the property is secondary to the lender’s lien. This means that if the property is sold in a foreclosure, the lender will be paid first, and any remaining proceeds will go to the landlord.
Why Do You Need Subordination?
Subordination is necessary because the SBA requires that their lien on the property be first in priority. This ensures that the lender can recover their funds if the property is sold, even if the landlord has a claim on the property.
How to Obtain a Landlord Waiver and Subordination?
To obtain a landlord waiver and subordination, you’ll need to contact your commercial landlord and provide them with the necessary documentation. This typically includes a copy of your loan application, a copy of the appraisal report, and a copy of the loan commitment letter. Your lender may also provide you with a sample waiver and subordination agreement that you can use as a template.
It’s important to begin the process of obtaining a landlord waiver and subordination early in the loan application process, as it can take several weeks to obtain these documents. Working with a reputable lender who has experience with SBA 7(a) loans can help streamline the process and ensure that you are able to secure the financing you need to grow your business.
If you have questions relating to the content of this article or the 7 (a) Small Business Administration guaranteed loans facilitated by American Momentum Bank, Mihir Patel would welcome the opportunity to answer them. Mr. Patel can be reached at (910) 536-5170 and mpatel@americanmomentum.bank.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, accounting, legal, and financial planning communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.