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December 10, 2010

Can’t get financing? Try an SBA loan

  • New laws have expanded loan limits and reduced fees for owner-user real estate.
    Community West Bank


    It seems there’s not a day that goes by in our industry that you don’t hear about the lack of financing for commercial real estate. While there are many types of deals that are not moving forward because of this lack of funding, owner-user financing through SBA lending programs has been helping to fund a steady stream of real estate transactions.

    Recently passed legislation known as the Small Business Jobs Act will result in even greater support for small business owners that wish to purchase commercial real estate for their business use. The legislation temporarily raises the government guarantee on the Small Business Administration’s 7a loans to 90 percent, as well as waiving the loan fee for the program. It reduces the loan fee for the SBA 504 loans as well, through Dec. 31 or until $505 million in appropriations for their support is used up.

    Additionally, the size limits for SBA 7a loans will soon be increased from $2 million to $5 million. The maximum size for the guaranteed portion of SBA 504 loans (typically 40 percent of the total purchase price or project cost) has permanently increased to $5 million, except small-manufacturer and energy loans, which will increase to $5.5 million. This means by adding a bank’s first mortgage at 50 percent, the total purchase price of a property can be up to $13.75 million based on a 10 percent down payment from a qualified borrower.

    “During my career, I have worked with a variety of owner-users that I have encouraged to consider SBA financing,” said Billy Poll of Morris Piha Real Estate Services. “The SBA programs have definitely helped me close more deals, and due to the recent changes and increases in loan limits, I can work on a greater variety of transactions.”

    The legislation outlined above gives prospective buyers an added incentive to act now, not later. The key in this market is finding business owners who are motivated and qualified to own the commercial real estate that their company will occupy. Providing real estate brokers with a resource to pre-qualify their prospective buyers has always been a part of my day-to-day activities. Knowing your prospects are qualified and able to execute financing quickly is a huge edge against the competition.

    Many of you have helped business owners purchase their own property in the past. They may have chosen to go the route of conventional financing, only to discover they are now faced with a balloon payment or call date and are forced to refinance. Perhaps because of the decline in values, they are having difficulty meeting today’s conventional loan-to-value requirements.

    Real estate brokers should inform their clients that they can now look to the SBA 504 program to refinance owner-user commercial real estate loans with “unfavorable terms” such as balloon payments or call dates. The 20-year fixed-rate part of the 504 program is particularly appealing with interest rates so low and the fact that it has no call dates or balloon payments to force a refinance in another five years. The program will allow up to 90 percent loan-to-value as well.

    Loyalty comes to those who stay in touch with past clients and provide critical information. It may not result in a deal today, but your clients will undoubtedly remember you for their next real estate transaction.

    “Being a good broker is more than just selling a property. It’s understanding new laws and regulations as they pertain to a client’s holdings and opportunities and keeping the client apprised,” said Arvin Vander Veen, senior vice president with Colliers International. “That kind of ongoing service breeds long-term loyalty. The new changes in SBA guidelines will benefit many of my owner-user clients, so it’s mutually beneficial to keep them informed.”

    Community West Bank Vice President Michael Esfeld has specialized in SBA financing for more than 22 years. He is based in Bellevue.

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