Lender Q&A: Start-up Business vs. Extension of an Existing Business
Question: What's the difference between a start-up business versus extension of an existing business?
Answer by Tom McHale, Senior Vice President
"A recent 504 request included building financing for the fourth location of a restaurant. The original locations are each organized into separate entities with the same owner. The fourth location included a new owner as a silent minority investor. Due to the difference in ownership, SBA requires 15% down for the purchase of the building. If the fourth location had identical ownership to any one of the prior locations and the prior locations had been in operation at least two years, then a 10% equity injection would have been permissible. This ruling does not apply to change of ownership situations. If the owner of the original locations were to purchase an existing restaurant business and continue to operate it under the same trade name and concept, then a 10% equity injection would likely be permissible."