A SBA loan client of mine who is applying for an SBA financing to purchase a franchise just got a rude awakening when you miscalculate the amount of
home equity. The equity is needed in this case since it is a new franchise purchase ($375K) and the lender requires some amount of home equity to secure the deal (the amount needed depends on the information provided by the potential borrower and the franchise being purchased).
I let my client know to be especially careful when calculating the equity amount since home prices have dropped in her area and there are a lot more homes on the market for sale at this time. Sure enough she took values of homes in her neighborhood from over a year ago hoping they would use those numbers.
Now we are trying to get more recent comparables of homes sold in her neighborhood over the last 3 to 6 months but it doesn't look good due to the current housing market conditions.
Remember, if equity is needed to secure financing & use recent comps & up to 6 months old and don't overstate the amounts since an appraisal is ordered by the lender before SBA financing is approved for business purchases.•
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