Better Finance For Commercial Purchase Deals: Kurt Chilcott, CDC Small Business Finance
Locking down financing on purchase deals for property remains tough, even as steady recovery in commercial real estate continues. Commercial mortgage brokers and bankers are common sources of capital, but are they always the best ones? Are there other ways to finance the deal?
Kurt Chilcott, CEO of CDC Small Business Finance, suggests the options that a certified development company can present to clients at the financing stage can make a giant difference. Things a banker typically shies away from, such as a fixed interest rate, once introduced can open the door to an entirely different deal on a fast track.
As Kurt puts it:
“Commercial mortgage brokers and bankers typically can assess the financial prospects of any clients interested in buying a commercial building, but certified development companies (CDCs) with expertise in Small Business Administration (SBA) financing also can bring experience and a helpful perspective to the table.
Many times, bankers are quick to recommend conventional financing, or in some cases, an SBA 7(a) loan. It’s understandable, as they may make more in fee income from the small-business owner with these products compared to an SBA Real Estate Advantage (504) Loan (REAL), which is designed for commercial real estate purchases and long-term machinery and equipment. Conventional and SBA 7(a) loans are not always the best products for the small-business client, however. Commercial mortgage brokers looking to finance a purchase deal may want to look more closely at REAL loans.
In brief, a REAL loan package can provide:
- Total financing for as much as $10 million
- 90 percent financing
- Fixed interest rates* (which have been less than 6 percent for nearly two years)
- Amortization terms of as many as 20 years
- No balloon payments
Many small-business clients eventually must determine whether buying or leasing their facility is the best business strategy. A REAL loan can make purchasing attractive because the downpayment required by the owner is typically only 10 percent — far less than with standard commercial loans. Many REAL loans are for office, retail or industrial buildings, but these loans can finance virtually any type of business. In addition, there are long-term tax and equity benefits.
REAL loans do have a specific structure, however. CDCs participate with lenders to structure the project accordingly:
- The client provides 10 percent down.
- The CDC (the SBA-guaranteed portion) provides 40 percent of the total project costs
- The bank or other lender provides 50 percent* of the total project costs.
With their expertise in REAL financing, CDCs can assist brokers in many ways, including pre-qualifying clients, educating clients about REAL financing and helping to structure the projects to secure quick SBA approval. In addition, CDCs can query banks that may want to partner on the REAL financing package, or they can work with a client’s lender of choice. Reputable CDCs maintain relationships with a variety of banks and know their credit parameters. CDCs also can help monitor the
financing process and ensure the deal closes in a timely manner.
Commercial mortgage brokers who know about the options that the REAL loan can provide can help their clients get deals done. Get ready, get REAL!”