AER, LLC needs to obtain financing for a business loan that will be used to purchase a new location. This real estate is going to be $650,000. AER has agreed to this price with the land’s seller. After consideration, AER wants to use the SBA 7a program to finance said property over 25 years. The bank’s minimum DSCR is 1.2.

Assume the bank will assign 3.5% origination fee on top. In the closing costs, AER faces the following: $2.5k for appraisal, $3k for Phase 1 environmental, $2.5k for the UCC search, title insurance at 2% of the property price, .37% for the SC deed recording fee, $150 per guarantor IRS Tax Verification and $5k for attorney costs. Only the guarantee and origination fees are built into the loan amount. The following table shows guarantee fees (Source: SBA):

Loan Amount	SBA Guarantee	Guaranteed Amount	SBA Guarantee Fee If Loan Term > 1 Year
$500,000 or less	85% of the loan	$127,500 or less	0%
$500,001 to $700,000	75% of the loan	$112,500.75 to $525,000	0.55%
$700,001 to $1 million	75% of the loan	$525,000.75 to $750,000	1.05%
$1,000,001 to $5 million	75% of the loan*	$750,000.75 to $3,750,000	3.5% for portion up to $1 million, plus 3.75% for portion over $1 million

Assignment

In Excel, assemble a table that calculates the following:

• Guarantee fees
• Loan Origination fees

Next, if Prime is at 7.75%, calculate the monthly payment, total interest, and total loan value for this deal. If the business produces $12,500 in monthly gross revenue and expenses at a 45% benchmark, is the company’s DSCR sufficient for loan coverage?

What is the max Prime rate this business could handle before falling below the bank’s minimum DSCR? Assuming AER decides to utilize the 504 program instead of 7a, would this be beneficial to the company if the bank rate starts at 9%?