On a recent 710 WOR “Mind Your Business” broadcast, Yitzchok Saftlas (YS) spoke with Yankie Markowitz (YM), CEO of SBA Loan Group.
YS: What are the typical industries that SBA Loan Group services?
Yankie Markowitz: SBA has more industries that are eligible for SBA financing than there are those that are not. We deal, historically, with a lot of e-commerce businesses. When we got into the business, we realized ecommerce is a very hard business to finance. Banks do not like e-commerce. Typically, when somebody gets a line of credit, it’s going to be based off their accounts receivables, not so much their inventory. But the SBA allows for e-commerce companies. So, we focus on trying to find banks that would do loans for e-commerce companies. We deal with manufacturers, distributors, wholesalers, and believe it or not, we do a lot of business with attorneys, accounting firms, marketing firms, the list goes on and on.
SBA does not allow you to lend to companies that lend money. You cannot borrow money to lend to somebody else or for passive income investments like real estate. I get a lot of calls for real estate. If I could do it, I’d be very wealthy, but it’s only for your business. But there’s more businesses that are eligible than businesses that are not. SBA is a cash flow lender. So, it’s not necessarily about your receivables or your inventory. SBA looks at; can you afford t pay us back?
YS: Perhaps we could spend some time talking about the 7(a) loan.
Yankie Markowitz: Throughout these past two years, SBA has been very popular with PPP and EIDL, but nobody knows that SBA has been around since the 1950s. The 7(a) was created to help small businesses obtain financing, because, historically, banks do not like to lend money to small businesses. So, they created the 7(a) program, which I would say is the most flexible and versatile loan program out there. It can be sued to refinance debt, purchase inventory, buy a business, buy out a partner, buy real estate for your business and get 100% financing. It’s almost like the Swiss Army knife of loan products, there’s many different uses for it. Typically, when someone calls us up, that’s the number one go-to loan that they would need because of its versatility.
YS: So, now let’s turn to the 504. What is the 504 loan?
Yankie Markowitz: The 504 is more specific. It is the most comparable to conventional financing. However, it is specifically for fixed assets. So, if somebody wanted to buy a piece of property for their business, they could use the 504 program. If somebody wants to buy heavy machinery for their company, they could use the 504 program. And in that program, you ultimately end up with two separate loans, and part of the loan is a fixed rate. Typically, or at least in today’s day, it’s a bit cheaper than the conventional financing. The appeal for the 504 program, is you could put down 10%. Anybody who is familiar with real estate investing, or wants to get a loan against real estate, knows that 90% financing is a lot. And that is the main difference. The 504 program can get you 90% financing is a lot. And that is the main difference. The 504 program can get you 905 financing but specifically for fixed assets.
YS: So, you could wind up getting a much larger loan through the 504 over 7(a)?
Yankie Markowitz: Correct. The 504 will be typically used above $5 million. The 7(a) caps out of $5 million. So, the 7(a), as I said before, is the Swiss army knife of loans. It is a fantastic product. Anything you want, if you have working capital, you’re going to use the 7(a). The 594 is specifically for real estate. In the 504 program, we’re going to get 90% financing to buy a piece of property. In the 7(a) program, we can get 100% financing to buy a property plus working capital or inventory financing. You cannot use the 504 program for anything other than a fixed asset, such as real estate or heavy machinery. So, the main differences I would say are the versatility of the 7(a) versus the 504 and the fixed rate on the 504 versus the non-fixed rate on the 7(a).
YS: Let’s say a business is an owner-occupied type of business, it has the real estate, which one would you say that they should apply for?
Yankie Markowitz: That would depend on what the business is trying to accomplish. Every business has its own challenges. The business owners have their own risk tolerance. So, most people who are in an inventory type of business, not a service business, have to buy a product and sell it. Money is valuable to them. So, if they’re going to buy a building for $4 million and for the 504 program they have to put down $400,000, it’s a simple calculation. How much money can I make having that $400,000 in my pocket, reinvesting it in my business, and growing my business further, than just parking it into real estate. That doesn’t mean it’s a bad idea to park money into real estate, however, that $400,000 typically brings them X amount of dollars a year. So, it’s much smarter for that individual to use the 7(a) program.
If he’s somebody who’s a service provider, he may not need capital, unless he’s going on a marketing campaign. If he’s somebody who’s a service provider, he may not need capital, unless he’s going on a marketing campaign. If he’s expanding and hiring new employees or maybe wants to open an office in California, in that scenario, he may use the 504.
YS: I want to split my question into two. Number one is, when do you recommend that someone starts thinking about reaching out to a firm like yours? Number two is, from experience, what is the normal timeframe it takes from they go ahead and process a loan until they see money?
Yankie Markowitz: Truth be told, every good business owner should at least sit down by himself, or with his accountant, and actually look at their company, look at themselves, and figure out where they are going. What are they trying to accomplish this year? And if somebody wants to do that, wondering how they grow their business and think about that properly, then give us a call. We can tell you what is available based on your cash flow.
Each individual business is unique. I could deal with two businesses that are in the same industry and they’re worlds apart. We can see that in our children, right? They come from the same exact place. I, myself am a twin and I’ll tell you what, were very much alike, but we’re also very different. So, everybody’s unique. It’s almost like creating a custom-made suit. You’ve got to take the measurements. One person may be top-heavy, one person may be bottom-heavy. But it does take time, a typical loan in our firm takes about two months to process. So, from start to finish, it’s typically two months, sometimes three. But the industry standard is probably eight to thirteen months for SBA loans.
YS: Can you tell us a little bit about the Community Development Corporation (CDC)?
Yankie Markowitz: The CDC is, I would say, the liaison. In Jewish terms, it’s the mashgiach, and SBA is the hechsher. The CDC is responsible for overlooking each individual loan before it gets to SBA in the 504 program. As anybody with a business who’s tried to apply for PPP or EIDL and got stuck knows, SBA doesn’t have the manpower to process every single application. So you go through the CDC, first. They are trained and understand SBA. SBA is all they do.
They have to see, number one, if you have a bank that’s willing to give you their portion of the loan. Two, you meet all of SBA criteria. Three, there are no hidden sequences, secrets in the background, background checks, etc. And once you meet all of the criteria from SBA, and that’s the SOP (standard operating procedure) which is updated every year, then and only then do you go to the SBA for its approval. Once the SBA approves it, they come back to the CDC. Nobody gets to speak to the SBA besides the CDC – not the bank, not the client, just the CDC. Direct communication
When you’re dealing with different CDCs, a lot of them get lost in translation. You need a man on the ground. I myself, actually, I’m on the board of a CDC called RBAC. We are the largest CDC in New Jersey, second largest in New York, and I’m also on the loan committee. So, I get to see all the loans that come through New Jersey, whether it’s mine or not, before it’s approved, and I actually have to vote on them to see if it’s eligible or not.
YS: So, how has the industry changed over the years? I imagine certainly the last two years have upended the norms.
Yankie Markowitz: Well, the industry is constantly changing, just like an industry constantly changes, right? E-commerce after the pandemic changed. Thankfully, a lot of our clients were in e-commerce, so that grew well. The SOP (Standard Operating Procedure) that I mentioned earlier is the Bible, if you will, of SBA. The Ten Commandments but with 500 pages. Throughout the year, they constantly send out updates. And every year they give out a formal update. During the pandemic as an example, the SBA created a whole new questionnaire. What happened during he pandemic? What will happen in the future? A lot of banks today, not all of them, but many still look at that guideline. One of their questions is, “if there is another pandemic, how is your business going to be able to move forward?” Some businesses can’t, they just simply have to shut down. We have a lot of people in the food industry, that was a very good business to be in. You had a lot of people in e-commerce, a very good business to be in. Manufacturers, even though the supply chain has been bottlenecked, they did, thank G-d, very well.
YS: For a business owner looking to scale, what’s the advantage of going to SBA Loan Group over trying to do it yourself?
Yankie Markowitz: A traditional SBA loan is done through a bank. As I said before, the CDC communicates with SBA, you never do. A bank is the one who lends you the money. The SBA gives the bank a guarantee, that if you default, they’re going to pay back X percentage of the loan. The reason why it’s important to go to a broker, particularly SBA Loan Group, is that we only deal with SBA financing. That’s all we do. You want to come to me about refinancing your house, that’s not me. We specifically live and breathe this every single day.
This question has been brought up to me many times, and a good example of how to explain it is when somebody has to defend themselves in court, whether it’s a traffic violation, or, G-d forbid, something worse. The law allows you to represent yourself, yet people take attorneys. Why? Because you may something that you shouldn’t, you may highlight something that you really shouldn’t when pointing somewhere else would be a lot better for you. It’s the same as with a broker. When I go to buy a property, I always use a real estate broker. I have connections with 50-60 banks out there, personal connections. I could call up the CEO. I don’t do that. I go to somebody who specializes in that field. And in this case, it’s us.
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