Episode Transcript
[00:00:00] Speaker A: But I appreciate your time. We're both here at the OHC conference as vendors talking to RV park owners and networking with other people in the space too. So I appreciate you coming over to our little redneck camping booth.
[00:00:10] Speaker B: I love it, man.
[00:00:11] Speaker A: Spending a few minutes with us. Where are you at, who are you and how do you help RV park?
[00:00:15] Speaker B: Yeah, for sure. So a little bit about Thomas Financial Group. We've been around for 40 years and we specialize in SBA and USDA lending, so been around longer than I've been on this earth. But we specialize strictly in SBA and usda. I'd say USDA is where we go to for a lot of these types of products projects. Just because of the rural geographic of the businesses and of the RV parks.
[00:00:36] Speaker A: Yeah. So naturally in those areas.
[00:00:37] Speaker B: That's right. So I've done it.
[00:00:39] Speaker A: Just a little tidbit. I've done an SBA 7, 8 loan myself.
[00:00:42] Speaker B: Oh, there you go.
[00:00:43] Speaker A: When I built my first part.
[00:00:45] Speaker B: Yeah. And that's where we buy for K and we say, okay, the project size is below 5 million bucks and that's going to fit into the SBA realm. And SBA is going to be a lot quicker than the usda.
Yeah. So it because those SBA lenders, they have a plp, which is a preferred lender status. So they ultimately don't have to go and get a approval like the usda. Usda, you have to go to the USDA state office. If it goes higher than their lending authority, then you have to go to the national office.
[00:01:12] Speaker A: Wow, I didn't know that.
[00:01:12] Speaker B: So it's a lot longer timeline. I'd say typical timeline on the SBA side is going to be 45 to 60, sometimes 90 days.
[00:01:20] Speaker A: Yeah.
[00:01:20] Speaker B: USDA could take as long as six months.
[00:01:23] Speaker A: Yeah. Because that's the tough part because if you, a lot of times you want to buy the land with the loan too. And so who's going to want to be under contract for six months?
[00:01:30] Speaker B: That's right.
[00:01:31] Speaker A: With mine it was 90 to 120 days. Luckily they had to clear up some random debt they didn't know about. And so we were able to extend the contract, but I couldn't get it until it closed on a loan with the SBA. So it took every bit of 90. 120 days.
[00:01:44] Speaker B: Yeah, exactly.
[00:01:44] Speaker A: So after six months, that's pretty interesting.
[00:01:47] Speaker B: Yeah. And we, we have third party bridge products that'll come in and help coordinate acquire the land original so that at least that's locked down. And then we Ultimately, wait for the USDA approval.
[00:01:56] Speaker A: Sometimes you gotta believe in your plan on that.
[00:01:58] Speaker B: That's right. I know. And you're all in. I'm still waiting on that. Right. So that's the catch 22 of the USDA. But what it's really out there to do is to cover the entire project cost. And the leverage that you get on top of the terms that you get.
[00:02:11] Speaker A: Yeah.
[00:02:12] Speaker B: Is absolutely ridiculous. You can almost put a mortgage on your business. So it goes up to 30 years, fully amortized. There's no balloon.
[00:02:18] Speaker A: Yeah.
[00:02:19] Speaker B: And at the same time, where the. Where we bifurcate SBA versus us is project size. And then the USDA strictly goes towards rural eligibility. So I always throw out the stat 97 of America's rural.
[00:02:30] Speaker A: Okay.
[00:02:31] Speaker B: Which you take basically drive 30 to 30 minutes to an hour. Outside of a big city, you're going to be in a rural area.
[00:02:36] Speaker A: So I'm curious on what the different factors are. If it's in a USDA under their map and it's less than 5 million, does it ever make sense to do USDA?
[00:02:45] Speaker B: I'd still take it SBA just because. Yeah. 7A. And you also have the 504.
[00:02:50] Speaker A: Skim over that.
[00:02:50] Speaker B: Yeah. And that one's an interesting one. It does take a little bit longer than a normal 7 a loan would.
[00:02:54] Speaker A: What's the benefits of that?
[00:02:56] Speaker B: You got a better interest rate. And what they do is they. It's called.
[00:02:58] Speaker A: Mine was one. Sorry, I keep interrupting.
[00:03:00] Speaker B: No, you're good. I had a lot of copies. A lot of people. No worries.
[00:03:03] Speaker A: But it was. Mine was one point over prime.
[00:03:05] Speaker B: That's a good one.
[00:03:05] Speaker A: 504 would be something similar. Yeah.
[00:03:07] Speaker B: So 504 is actually below prime. Because how they structure it is. They take. They take half of the capital stack and they make it an SBA loan, and they take the other half. They make it a conventional product. Yeah. So you're getting a blended rate. Sometimes that falls in between 5.5 to 6.5. So you're going to be below prime on that because they strictly lend towards real estate and real estate improvements.
[00:03:27] Speaker A: That's pretty neat. That's huge. 112 percentage points.
[00:03:29] Speaker B: Yeah.
[00:03:30] Speaker A: Difference maker.
[00:03:31] Speaker B: Big time. And then the main thing that the USDA is there for is for big projects.
[00:03:35] Speaker A: Yeah.
[00:03:35] Speaker B: And that. That's where you asked me. If it's below 5 million, we'll push it SBA. If it's a 10 million, 15, 20, $25 million project. More of those, we'll go USDA. Exactly. You need one of those for. For 10 of the.
But yeah. So USDA goes up to 25 million. Okay. And 25 is the cap. And then the big differentiator is you can rinse and Repeat through the USDA. So your 25 million is per project, per entity, SBA. The moment that you get your 7 loan and you're. And you hit the $5 million max, you can't go back and get another SBA loan for the next project. So they cap you at the personal guarantee level.
[00:04:11] Speaker A: Yep.
[00:04:11] Speaker B: They look at your exposure there. Whereas the USDA says, okay, they've successfully ran, built, ran, and cash flowed on this project. Now we can go and help them acquire, build the next one. As long as you create another entity, the cash flows. Can't rely on each other. But once again, that's where we see a lot of hoteliers, RV park owners, outdoor hospitality owners come back for a USDA loan.
[00:04:34] Speaker A: And then.
[00:04:34] Speaker B: And then the leverage at the end of the day, getting 75% LTC. If you go to a conventional lender, you're probably going to be required to bring in 30 to 40% of equity, whereas in our case, we're at a 25% equity requirement.
[00:04:48] Speaker A: Yeah, that's nice, because I did one in Oklahoma and local bank was like, oh, it's only 25% down. I was, oh, that's cool. And then they're like, on the construction side, we're not paying out once a month till after work has been performed. So I was like, I'm gonna need an extra $100,000. And next thing, we're 42% into it. This sucks. I could have done hard money loan, not how to deal with all this crap.
[00:05:05] Speaker B: Exactly. And then get out of it right afterwards. So. Yeah, and that's the kicker.
[00:05:10] Speaker A: That was a hard lesson for me.
[00:05:11] Speaker B: Oh, yeah. And you only you learn from experience. Right. Because it's trial and error. But now I've seen enough to be able to tell like, all right, this should definitely go sba. This should go USD. And then it's always good to have good advisors. And all we do is just creative financing. So, you know, we come up with creative structures and bridges. That's right. And we even just found a bridge lender on construction that's handing out prime plus two and a half to three. So, you know, you're not looking at 11 to 14% interest rates, which is very beneficial. And those guys close within two to three months.
So you still got that 60 to 90 day leeway, but at least it's a little bit Quicker than waiting for USDA approval.
[00:05:47] Speaker A: Yeah, for sure. That's not bad rates because we were looking at 70 site development, 1.75 construction costs.
We owned the land already, just waiting on a permit and we were looking at 11.99% for 18 months for the construction line. And then we were going to refinance long term debt after we stabilized.
[00:06:03] Speaker B: Yeah, and that's what, that's the other beauty of the USDA and the sa. They'll build out that interest reserve for during construction.
[00:06:10] Speaker A: And then the banks and hard money guys, they won't do that.
[00:06:12] Speaker B: No, not at all. They want to be taken out the moment project's done. Right.
[00:06:15] Speaker A: Even the banks, they're interest only up front. And then they're like, give us our money.
[00:06:19] Speaker B: Yeah, yeah, 100.
[00:06:21] Speaker A: So I would love to explore ones where they can build in some of those so I don't have to be so capital heavy.
[00:06:26] Speaker B: That's right. That's right. Yeah, yeah. And that's where if you don't want to give up equity in your project, then yeah, you want to go and look at a form of debt. But now the question is, what is that debt? And that's where Thomas thrives in the industry. Because Thomas is what I would call a pseudo broker slash loan. And it's at no cost to the borrower. The banks pay, pay our tab at the end of the day.
[00:06:46] Speaker A: Nice.
[00:06:46] Speaker B: But ultimately we have seven to ten different credit boxes that we could go to because we're not tied to a bank now.
[00:06:52] Speaker A: Yeah, because I've been few of these deals and life happens. So you just got disqualified for this. We got to figure out something else. That's right. I have a backup plan.
[00:06:59] Speaker B: That's right.
[00:07:00] Speaker A: Life always happens.
One thing that the SBA was can't be more than 50% long term people. So is USDA the same?
[00:07:06] Speaker B: USDA is gonna be the same because they deem it residential. Right. So both programs are out there for the commercial aspect, but the fact that you can mix in, you could have percentage under 50%, be long term and still get away with a majority of it being commercial and short term rentals. That rule is if those leases go longer than 30 days, if you're giving out three month leases, six month leases, 12 month leases, then that's where they're going to deem it residential.
[00:07:32] Speaker A: Yeah, but normally in our realm, you want to do month to month because when it comes time to evict somebody,
[00:07:39] Speaker B: you got to get them out quick.
[00:07:40] Speaker A: Yeah.
[00:07:40] Speaker B: And it's easy because the house has Wheels.
[00:07:42] Speaker A: Right.
[00:07:42] Speaker B: So, yeah, you tell them if you don't. I'm pulling it out. Yep. So. So that's a great thing. But. But yeah. So we once again, we consult on the front end. And more importantly, we. What we do is we go to the banks that we already have a relationship with, that we now have the balance sheet to fund the deals. And then B, we're also going out to the market and finding banks that may advertise for usda, but we don't see a lot of USDA production out of them.
So that way we're saying, hey, have the balance sheet ready, have the funds ready. We're going to walk this thing through the usda. We're going to get third party reports. We'll be the point of contact the entire time. And I've been doing it for six years now, and the company's been around for 40 years. So once again, $5 billion closed and mainly USDA, but also some SBA mixed in there.
[00:08:24] Speaker A: Nice.
[00:08:25] Speaker B: And we know how to get creative, man.
[00:08:26] Speaker A: Yeah. Because it's a big number, but to me it just hears getting done. That's it.
[00:08:30] Speaker B: That's it.
[00:08:31] Speaker A: Because I've been through some of these and you put all this heart and effort into it. You do this and then it falls through and you're just like, whether it's a partner, whether it's bank, whether it's. You're not the right lender or something. So it's really difference maker and just yeah. Get into the closing table big time.
[00:08:43] Speaker B: And I'm sure you come across business brokers, right. And they're like, hey, I'll go and shop it for you. And that money's either coming out of your pocket or it's going into the loan proceeds and it's amortized throughout the loan.
[00:08:52] Speaker A: Yeah. We're talking one guys, they want 20 grand up front to get it through underwriting. I'm like, I don't want to do that.
[00:08:57] Speaker B: Yeah. Yeah. And once again, once again, we require a deposit with our term sheets. But the reason being is because that money doesn't go into our pockets. It goes towards your third party reports.
[00:09:05] Speaker A: Yeah.
[00:09:06] Speaker B: That we need to check the boxes for the.
[00:09:09] Speaker A: That's cool, man.
[00:09:10] Speaker B: Yeah, man.
[00:09:10] Speaker A: Yeah. I appreciate the insight. I haven't explored on that USDA side loan. So I think that's interesting. I learned some stuff here now about it.
[00:09:16] Speaker B: Yeah, for sure.
[00:09:17] Speaker A: That's cool. I appreciate your time. We got a lot of other RV park owners running around, so thanks for sharing your information and taking time for us.
[00:09:24] Speaker B: Of course, man. And hopefully we do some business together.
[00:09:26] Speaker A: Look forward to it, man.
[00:09:27] Speaker B: Hey, thank you very much.
