As a plumbing company owner, you know that growth means investing in infrastructure, vehicles, and equipment. But what if you don't have enough capital to expand? That's where SBA loans come in. In this Q&A session from the Investor Financing Podcast, Bill Davis shares his expertise on SBA loans for a plumbing supply company that wants to build a warehouse and increase its fleet of delivery vans.
Background
The plumbing supply company has been in business for eight years and is growing at 20-30% per year. The owner wants to build a warehouse and expand the fleet of delivery vans to keep up with demand. The total project cost is estimated at $4 million, which includes land acquisition, construction, and $300,000 for equipment and vehicles.
SBA Loan Options
Davis recommends going for an SBA loan, either a 7A or 504, because of the real estate involved and the fact that it's a business expansion project. With a 504 loan, the company can finance the build-out and construction, but not the equipment and vehicles. The borrower would need to inject 10% of the total project cost.
On the other hand, with an SBA 7A loan, the borrower can finance not just the construction but also some operational costs, including interest carry. The borrower doesn't have to make payments during the construction phase, which can take a load off their cash flow. Additionally, the borrower can finance the $300,000 for equipment and vehicles.
Choosing Between SBA Loan Options
Davis suggests that the plumbing supply company should choose the SBA 7A loan option, especially if they don't have a lot of capital to inject into the project. Although the interest rate may be higher, the borrower can benefit from the lower down payment and the shorter prepayment penalty (three years instead of 10 for a 504 loan). In three or four years, the company will have built enough equity to refinance into a conventional loan.
Book a Call for a Free Strategy Session
If you're a real estate investor looking to refinance or grow your existing business, Davis offers a free strategy call to help you come up with a finance plan. Whether you have a portfolio of 30 properties or just starting with your first one, Davis can guide you through the process and help you achieve your goals.
Conclusion
SBA loans can be a great financing option for small businesses that want to expand. In this case, the plumbing supply company can benefit from an SBA 7A loan to finance not just the construction but also the equipment and vehicles, as well as some operational costs. By choosing the right loan option and taking advantage of the benefits, the company can grow its business while keeping its cash flow healthy.