Short answer: Yes, you can finance RV parks with SBA financing, either in the form on an SBA 7a loan or an SBA 504 loan.
Long answer: Yes, you can. You can even finance turnaround parks, meaning an RV park that is having some occupancy issues or is mismanaged, maybe the debt service coverage ratio (DSCR) is a little bit lower than the normal 1.15 requirements.
If you have a good plan, you definitely can get SBA 504 or SBA 7a financing.
The 7a is often more advantageous because you can build in working capital. You can build in some of the salary requirements to get you off the ground and running after you take on ownership of the property. So you can do value-add type of projects with the SBA 7a and you'd also want to use the 7a, because it's got a shorter prepayment penalty on these turnaround properties.
Typically, let's say you're buying it for a million dollars. You're putting $400,000 into improvements, you're stabilizing it, you're increasing occupancy levels, you're forcing appreciation on the RV park, and now the all-in valuation is at $1.4 million on the project and the stabilized value is $2.8 million.
So after year three there's no prepayment penalty. You refinance using the new stabilized value, which is now appraising at $2.5 to $2.7 million or more. You can borrow 65 or 70 percent of that, depending on the DSCR at the moment. You kind of did a bridge loan with an SBA 7a loan
The nice thing about the SBA 7a is that they are okay with the smaller tertiary markets, I mean bank by bank–all the banks have certain overlays, but most of the banks are pretty liberal because a portion of their loan is guaranteed by the SBA.
So that's why you get the highest leverage you can using SBA financing versus conventional. You might be at 60 percent leverage versus on this transaction between 80 to 90 percent leverage on this business acquisition financing, so SBA 7a is an amazing tool for RV parks.
The SBA 504 is also an amazing tool, depending on the overall plan with the RV park.
If you have further questions about using SBA financing for RV parks or any other business acquisition purposes, please contact one of our experienced commercial loan advisors.
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