This Veterans Day, let’s remember that servicepeople in the commercial real estate industry have a few extra benefits when it comes to obtaining capital and credit. In a tight market for capital, that can make all the difference at the deal table — especially for owner-occupiers.
The Small Business Administration (SBA) 504 program offers US military veterans and service disabled veterans commercial financing for purchase of real estate that will house your business, expand, retrofit, renovate or remodel an existing facility. Funds are also applicable for refinance of an existing commercial loan as part of a business expansion.
Some terms of eligibility: A veteran-owned business is a business where at least 51% is owned by one or more veterans.
Not Limited To 504
You can browse the length and breadth of business advantages offered to veterans at the multi-departmental government business.usa.gov. Under its Resources For Veterans page, you can find a long list of benefits including business outreach, assistance in working with federal agencies, and the Center For Veterans Enterprise.
The list doesn’t stop there. CVE and other sites provide a wealth of information for vets in business and commercial real estate: an enduring government thank-you for those who answered the call to service.
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.
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.