Browse Tag: loans

NADCO President Talks REAL (504) Loan Success

A picture of NADCO President Beth Solomon
NADCO President Beth Solomon

The Real Estate Advantage (REAL 504) loan program is a key platform in the federal government’s business development role. Administered through the Small Business Administration (SBA), the REAL (504) loan is for small business to acquire real estate and equipment.  While it’s not the only loan program the SBA offers — the full range of loan and grant programs can be seen here — the REAL (504) loan is a welcome topic at the real estate deal table when it’s time for a business to expand operations and acquire a larger footprint.

Representing SBA lenders and districts across the US is NADCO, the National Association of Development Companies. Spreading awareness of the loan programs among small business owners is a continual challenge. To get a wonderful illustration of how REAL (504) loans can work, check out a recent appearance by NADCO President Beth Solomon at a roundtable discussion and reception in Pueblo, Colorado.

Joe and Donna Ruzich didn’t celebrate alone at a reception Monday marking the opening of their Synergy Physical Therapy and Wellness center, a dream of Joe’s since he graduated college 15 years ago. 

The guest list included several top advocates for Small Business Administration lending programs, including Beth Solomon, president of the National Association of Development Companies, which represents SBA districts and lenders across the nation.

As part of the event, Solomon, visiting Colorado from Washington, D.C., led a roundtable discussion at Synergy, 1080 Eagleridge Blvd., Unit G. The Ruziches qualified for a smaller down payment on a purchase-and-remodeling loan as part of the Real Estate Advantage (504) Loan program.

Calling the new center a “REAL (504) success story,” Solomon urged small businesses across Southern Colorado to look into the program and other government-sponsored initiatives such as Small Business Development Centers. 

“We’re here to get these loans into the community,” she said.

Read the entire Dennis Darrow article that originally ran in the Pueblo Chieftan here.

(Photo Credit: The Georgetown Dish)

Jargon Watch: Nonrecourse vs. Recourse Loans

Creditor's Ledger, Holmes McDougall

If the old maxim neither a borrower nor a lender be was taken seriously, there’d probably be no commercial real estate market. The capital that enables our industry’s transactions is overwhelmingly a borrowed commodity. To borrow usually means to pay back, and the many rules and rituals surrounding the promise of payback have filled books, consumed careers and rewarded careful study with an understanding of what makes the property market really tick.

[As always, take absolutely none of what you read here at The Source as legal or fiduciary advice and always, always retain qualified legal counsel!]

Borrowers with partners prefer to borrow in such a way as to limit liability to the bare minimum in the event of a foreclosure. Going in, it’s very important that parties choose and agree upon a set of outcomes in the event the property goes south.  Perhaps biggest among the issues is the question about what to do with foreclosure and default risk.

If a partnership is doing the borrowing, usually that risk is sought to be placed away from personal liability on the part of individual partners. As such, a nonrecourse loan is often requested.

A nonrecourse loan is where the borrower is not personally liable for any losses on the part of the lender associated with the foreclosure of a property.  It’s an agreement that says the lender’s only legal recourse to compensate against any such losses is to sell the property, as opposed to coming after the borrowing partnership for payment.  Nonrecourse loans are commonly limited to half of the loan-to-value ratio and are used to finance projects with high capital expenditures.

(Note however that lender losses caused by any fraud or misrepresentation on the part of borrowers may in many cases be recouped legally even if a nonrecourse loan is agreed to.  State law varies quite a bit here.)

Alternatively, a recourse loan is where the borrower is responsible unconditionally for any loss or deficiency incurred by the lender.   Collateral may or may not be in the cards for a recourse loan, but it’s generally always at the bottom of a nonrecourse loan.