The other day I had lunch with my realtor friend Marian. She’s a delightful conversationalist and is full of engaging stories. Yet in the space of our one-hour lunch, I counted five times when she used that aphorism so common in her profession: “Location. Location. Location.” And of course it reminded me that location is a major qualifier for SBA loans as well.

Say the owner of an American business is a foreign national residing in Lower Helotzia. (I challenge you to find it!) Can you make an SBA loan to the business? If you’ve been an SBA lender for a while, you won’t be surprised when I answer, “Maybe.”

That a foreign national owns an American business doesn’t make the business ineligible. But there are two important qualifiers:

  • SBA can provide financial assistance to businesses that are at least 51% owned and controlled by persons who are not citizens of the U.S., provided the persons are Lawful Permanent Residents (LPRs) and comply (SOP 50 10 7.1, p. 20)
  • The business must be located in the United States and the loan proceeds must be used exclusively for the benefit of the domestic operations. (SOP 50 10 7.1 p. 15; 13 CFR 120).

 Then too, there are challenges:

  • The owner of 20% or more of the business must provide financial statements. And so must its affiliates. My experience is that SBA will require the statements to be in English and the amounts in dollars.
  • It also will be a challenge at application to demonstrate compliance using financial statements based on rapidly fluctuating exchange rates.
  • And the first time I dealt with a foreign tax return, the applicant told me “Of course, taxes in my country are negotiated. The government and the business first determine what the tax should be and then back it into revenue and expenses.” Oh my!
  • Then, what about collecting on collateral in a foreign country? There are many places in the world where I would prefer not to be knocking on doors to collect bad debt.

Finally, for 504 loans, did you know that one criterion for the exception that allows a maximum loan amount of $5.5 million for small manufacturers requires all of the business’ production facilities be located in the U.S.? Location. Location. Location!

A word about domestic relocation … It’s not just foreign ownership we need to consider. If you’re  financing the relocation of a business from one area of the country to another, you need to consider the impact on the departure community or any part of the country. (13 CFR 120.881)

Anyhow, I’m sure you’d like my friend Marian. Next time you’re in the area, I’ll invite you to lunch. I know a great location, location, location.

Richard Jeffrey, Senior Associate
Chief Underwriter