Business Expansion

Depending on the nature of the business, either an SBA 7(a) loan, an SBA 504 loan or an SBA Express loan can be used. Sometimes two or more of these products can be used in combination to best meet your needs.

At FNB Small Business Finance, we would normally require five to ten percent of the Total Project Cost of an expansion as an equity injection. However, every project is different, and your required equity injection could vary. We encourage you to find your nearest Business Development Officer (BDO) to discuss your plans and structure a financing package that best meets your individual needs.

Most often, we see buyers wanting to use a Home Equity Line of Credit (HELOC) for this purpose. SBA rules now say this is eligible as long as the borrower has sufficient outside income, not associated with the business being purchased (including proposed salary), to support the payments on the borrowed money.

• Relocation to a larger location that you plan to purchase or rent
• Addition and/or improvements to an existing facility
• Opening additional new location
• Buying a business in the same or complementary industry
• Purchasing owner-occupied real estate for your business when expanding from a leased location

Additionally, with an SBA 7(a) loan, proceeds can be used to purchase owner-occupied real estate and improvements, leasehold improvements to a leased location, additional furniture, equipment and/or machinery, working capital, and loan closing costs

For SBA 7(a) loans, we offer all borrowers a quarterly variable, three- or five-year fixed interest rate structure and let you choose the option you feel works best for you.

For SBA 504 loans, on the first trust loan, we also offer quarterly variable, three- or five-year interest rate structures. For the portion funded by the Certified Development Company (CDC), which would normally be 40 percent of the total financing, the interest rate is fixed for 25 years.

For expansion to a new leased location, the term of the loan will be 10 years with no prepayment penalty.

For an expansion loan for real estate acquisition:

• With an SBA 7(a) loan, the term can be up to 25 years, depending on the use of loan proceeds. SBA 7(a) loans with a term of 15 years or longer have a 5-3-1 prepayment penalty per the SBA rules. Here is an example of a 5-3-1 prepayment penalty: If you have a $1,000,000 SBA 7(a) loan with a term of 15 years or more and you choose to prepay $400,000 (at least 25 percent of the balance) within the first three years, the penalty depends on timing: in year one, you would pay a 5 percent penalty, which is $20,000; in year two, the penalty drops to 3 percent, or $12,000; and in year three, it’s just 1 percent, or $4,000. After the third year, there is no prepayment penalty at all.
• With an SBA 504 loan, we structure the first trust loan with a 25-year term and a 5-4-3-2-1 prepayment penalty in the first five years only. For example, if you voluntarily prepay part or all of the principal during the first five years, you’ll owe a penalty that decreases each year—5 percent in year one, 4 percent in year two, 3 percent in year three, 2 percent in year four, and 1 percent in year five. After year five, no penalty applies. The 40 percent is a 25-year term as well, funded by the Certified Development Company (CDC), and has a prepayment penalty for the first 10 years.

For an expansion loan, our underwriting includes analysis of both the historic operations of your business and the projections for the first two years once the project is complete. This is required by the SBA. We will need projections for the first two years (first year by month with annual totals; second year annualized). The business plan provided by the borrower serves as our guide to how the projected results will be achieved.