SBA Financing For Small Business Office Purchases

 

Loan
Loan (Photo credit: Philip Taylor PT)

Today’s wariness of banks and private lenders to finance commercial real estate transactions is widely reported as this industry’s leading challenge as it comes out of the recession.  There are many reasons given why bank lending volume isn’t where it should be, but at the core, credit availability depends on lenders being good at assessing risk. It’s not as if the country’s largest banks have earned the most sterling reputations when it comes to evaluating, securitizing and financing real estate risk — the recession itself speaks here.

No matter how the times got tough, it is absolutely critical to maintain the flow of credit during and following an economic downturn.   That’s one role of the Small Business Administration’s SBA 504 program: to provide access to capital and to shoulder risk when our pinstriped friends find themselves otherwise concerned with problems of their own making.

Can Your Clients Benefit From SBA Lending?

In the Associated Press piece “Small Business Boom Spurred By Government Support”,  the issue of capital access through SBA in rough economic seas is laid out in plain terms:

Since 1959, the SBA 504 program has been offering a form of government support to small business and to banks simultaneously by reducing the risk assumed by the bank.  The result is credit available to the small business during those times when it is needed most.

The amount of small business loans under the SBA 504 has risen 16% per year in the three years following 2009, adding up to $4.5 billion. “Small business” is for the most part defined as businesses having fewer than 500 employees and less than $5 million in income.   Business owners are required to put up a down payment of just 10 percent, compared with the 25 percent to 40 percent demanded in a commercial property loan.

Commercial real estate practitioners should know that the SBA option exists simply as part of diligence on behalf of clientele; and in financially trying times, it might even make the difference between deal or no deal.

Occupancy Requirements Mean One Size Does Not Fit All
The terms of these SBA 504 loans protect against default by providing approval requirements that owners are the primary occupier of their space.  Owners that occupy are more likely to pay back the loans, as opposed to investment properties where if a tenant leaves, the hunt for a new tenant creates pressure that elevates default to just another strategy available to the owner.

Further, the 504 program loans are made available through Certified Development Companies (CDCs), SBA’s community based partners for providing 504 Loans.

These requirements constitute a focus on long-term occupancy and community — promoting greater community stability.  The program highlights the difference between sustainable economic development and the kind of slash-and-burn approach to commercial real estate (and much else) that ended up being such poison to commercial property’s market for credit.
Full Details At SBA.Gov
The SBA 504 program details are all available at SBA’s website. 
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