Career Consultant Who Bought a 7-Figure Manufacturer

A couple of things there. So they increased the lease on you to incentivize that you would follow through with acquiring it because you buy the business and say, yeah, I'm going to buy the real estate after a few months later, but you could decide not to. But they made it worth your, but you guys agreed kind of in advance, like, well, we're going to raise the rent on you so that you hurry up and…

Yeah.

So I, you know, that was just a negotiation point. I said, yeah, I get it. Let's do that. And I am incentivized, but yeah, it kind of ate into earnings a bit for a couple of months there.

Yeah. Why didn't you buy the real estate with the 7A? Because if you buy it with the 7A, that's when you can get the full blended amortization, right? And you can, you know, if the real estate is actually worth 51% worth more than the business, then you can get the full 25-year amortization of the entire loan thanks to the real estate's value. So there are benefits to doing it all under 7A.

Yeah, you just answered that question for me. It's the amortization. So the real estate wasn't worth 51%.

So by virtue of that, the 10-year amortization and also the higher rate on the 7A just didn't make a lot of sense. The 504 is a way better vehicle. But yeah, it adds the complexity of having to do a separate transaction. Yeah.

And sorry, to be clear, the reason that they were separate transactions is simply because they're two completely different processes and 504 takes longer?

504 takes a little bit longer because you're closing two loans. You're closing a commercial component and then you're closing a component that's backed by the SBA. And then you get the benefit, though, of the 25-year amortization on the SBA portion, not on the commercial portion.

What do you mean not on the commercial portion?

So there's, it's complicated. So the bank issues their loan, their primary loan for their component of a 504? They also issue a secondary loan that fills the time period when the SBA debenture is going to be fulfilled by the SBA through the CDC.

So you go to closing, and you're essentially closing a primary loan, a commercial loan, and you're closing a secondary loan that's temporary. At your second closing for the 504 with the CDC or the SBA component, that's when they close out that temporary loan and the SBA loan takes effect.