Browse Tag: Small Business Administration

The SBA Loan Market: Financing In Greater Demand Than Ever

Nationally speaking, the finance of owner-occupied commercial real estate seems to never get significantly easier. Our current national economic conditions of recovery have not yet heated up the average enthusiasm of bankers for financing sub-$2M expansions in most real estate sectors, which ensures a more or less permanent lending gap affecting small business that Congress has recognized and addressed with the creation of the Small Business Administration.

Dating back to the Herbert Hoover administration, what eventually became the SBA was established by Congress to help businesses hurt by the Great Depression of 1929-39.  Shepherded along by Franklin Roosevelt, the program evolved during World War II to assist smaller suppliers with loans in competing against huge corporations for manufacture of war materiel.  The SBA we know today was created in 1952 by Congress and signed into law the next year by Dwight Eisenhower, spinning it off from the US Department of Commerce into the standalone agency “under the general direction and supervision of the President”.

7(a) – The SBA’s Keystone Loan Program

SBA’s lending and programs are many, but the biggest and most used is called 7(a) Loan Guaranty, where loans up to $5M are available to business for a wide range of purposes including real estate financing.  Terms can reach as long as 25 years while most loan repayments are shorter than that.

Fixed-rate 504 loans

While SBA offerings under its 7(a) program are fairly well known, less widely known is the 504 Certified Development Company loan program. Offering long-term fixed-rate loans for purchases of real estate or equipment, 504 is lauded for lower costs because the fixed interest rates tend to be below-market.

Intermediaries called Certified Development Companies commonly secure 40% of such loans, with 10% coming from borrowers and the remaining 50% coming from a private lender under SBA guarantee. According to the most recently published SBA Quarterly Lending Bulletin, the aggregated number of small business loans outstanding reached almost $600 billion, reflecting a rise year-over-year of 1.7%.

Both commercial industrial (C&I) and commercial real estate (CRE) loans make up small business loans.1 A careful look at these loans shows that they continue to indicate progress in capital availability for small businesses. For example, C&I continues to maintain a positive uneven growth (Figure 2). In addition, the decline in the small business share of CRE loans has slowed. C&I loan standards changed little in the first quarter of 2015, but bankers reported easing standards and terms on loans secured by nonfarm nonresidential borrowing (Federal Reserve’s Board Senior Loan Officer Opinion Survey). While there was not a significant change in demand for C&I loans, respondents reported that the demand was stronger for all CRE loan size categories.

The reminder is that SBA financing is a heavily-used option for the commercial real estate deals that are in the reach of professionals in secondary and tertiary markets.  As the recovery struggles to spread itself evenly across all the scales of local market in the US, 7(a) and 504 programs are there to make that recovery felt in every corner of the economy.

 

SEC Talks Federal Crowdfunding Regs At Two Events

Stephanie Speer, NAR’s Commercial Regulatory Policy Representative would like to let you know that Uncle Sam is grappling with all the implications of the 2012 passage of the Jumpstart Our Business Startups (JOBS) Act. But this isn’t another case of “the government bureaucracy expanding to meet the needs of the expanding government bureaucracy”.  This is about legally raising capital using crowdfunding techniques on the internet, a topic near to the heart of every dealmaker faced with stiff credit availability in a banking environment dominated by, well, banks.  Enjoy Stephainie’s guest post on a pair of SEC events on crowdfunding.  – WG

The Securities and Exchange Commission (SEC) held a two-day event in Washington D.C. focusing on small business capital creation, with a special emphasis on the implementation of the Jumpstart Our Business Startups (JOBS) Act of 2012. The SEC Government Business Forum on Small Business Capital Formation kicked off the event with a roundtable discussion featuring panelists from the Small Business Administration (SBA) and SEC, followed by a second day of panel discussions and work groups.

For context, regulators view the JOBS Act as partner legislation to the Dodd–Frank Wall Street Reform and Consumer Protection Act. Both were created in response to the Great Recession to focus on bank regulations. The JOBS Act was designed to provide more avenues for small businesses to raise capital, expand their operations, and create more jobs. Most of the JOBS Act provisions are in place but there is one provision not yet finalized that is generating a great deal of buzz among many groups of people: crowdfunding.

Much of the discussion at the event focused on how to make crowdfunding regulation work at the federal level. The SEC has proposed regulation that is not finalized and there isn’t yet an anticipated date of completion. Many states already have state-specific crowdfunding laws, but those are limiting to businesses because they only deal with activities occurring within a state. Businesses, investors, and state regulators are clamoring for the federal regulations to be completed so that crowdfunding can legally expand across state borders.

NAR has been monitoring the proposed crowdfunding regulations and working with experts and regulators in the field, as it views crowdfunding as another potential source of funding for commercial real estate. For additional information, check out our recent article in the fall edition of Commercial Connections on the subject (available here) and please contact me at [email protected] with any questions.

The CREED Act: Toward Refi Options For Commercial Mortgages

Capitol Hill, Washington DC

Owner-occupied refinance options could get a lot more forgiving, if the votes go the right way on the Hill. In a letter from NAR President Gary Thomas to Senators Mary Landrieu (D-LA) and James Risch (R-ID), NAR support for a key commercial real estate bill is spelled out. The issue addressed by the bill, S.289 “Commercial Real Estate and Economic Development Act of 2013”, is the impending maturity of $1.3 trillion in balloon mortgages.  Between 2013 and 2016, a wave of maturities is headed to holders of these instruments and market options for refinance being what they are,  there’s a real risk of higher loan defaults, delinquencies and business failures. The bill doesn’t create a new program for such mortgageholders.  Instead, it temporarily allows commercial real estate projects to be eligible for the already-existing SBA refinance program called 504/CDC. NAR President Gary Thomas continues:

Nearly $1.3 trillion of commercial real estate loans with balloon mortgages will  mature between 2013 and 2016, with very limited options for small businesses  and other commercial property owners to refinance. If not addressed, the  swelling wave of maturities could result in higher loan defaults, delinquencies,  and business failure – further endangering economic recovery.

An expansion of project types eligible for the SBA 504/CDC refinance program will alleviate some of that pressure by allowing small businesses to refinance certain owner-occupied commercial buildings. This helps ensure that small  businesses successfully persevering through tough times will not suddenly fail  for the lack of capital. Also, extending the 504/CDC refinance program’s  eligibility to include commercial real estate properties for five yearswill provide  more time for private capital to return to the market and help prevent  commercial financing from becoming yet another drag on economic recovery.

NAR strongly encourages the timely passage of S. 289, a critical component to  our nation’s economic recovery. REALTORS® thank you for your diligent work  to bring confidence and strength back to our finance system.

Read the entire letter here.  Examine the SBA refinance program here. (Photo credit: KP Tripathi)

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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Flood Insurance, Small Business Credit Help And More: NAR Commercial 2011 Legislative Wrap Up

Washington dc

NAR 2012 Treasurer Bill Armstrong’s podcast wrapping up the year in legislative issues for REALTORS® touched on a series of important issues affecting commercial real estate. Podcasts are great (I like to listen in the car), but when the issues include far-reaching legislation, it’s important to break out and take a closer look at the content in text – to make it visible to readers and in the search engines.  So let’s break it out:

  • NFIP Flood Insurance:  The House and Senate recently signed off on a second short-term extension (through December 16th 2011) to the National Flood Insurance Program.  This benefits both commercial and residential real estate practitioners.  That means there’s been no lapse in the NFIP authority to issue flood insurance.  Bill also mentioned that NAR will continue to urge Congress to pass a five-year extension, and reminded REALTORS to respond to NAR’s call to action in support of the NFIP extension at realtoractioncenter.com 
  • FHA Mortgage Loan Limits: Congress restored a two year extension to FHA mortgage loan limits. Through 2013, the limit stands at 125% of local area median home prices. “While that doesn’t impact commercial real estate directly, our industry depends on a thriving workforce and housing market, so this is an issue that all commercial practitioners will benefit from”, said Armstrong.
  • Credit Union Member Business Lending Bill: The House Financial Services Subcommittee held a hearing after NAR’s support for this idea.    This bill impacts commercial practtcioners by raising the cap on credit union member business lending lending from 12.15% to 27.5% of total assets (for well-capitalized credit unions). This allows more capital to be available to struggling small businesses occupying commercial buildings. “NAR will continue to engage Congress and other stakeholders to push for a raise of the business lending cap for credit unions,” said Armstrong.
  • As part of the Small Business Jobs and Credit Act of 2010, NAR was able to help create a new commercial refinance program implemented by the Small Business Administration.  This allows small businesses to refinance certain owner-occupied commercial real esatte loans.  The new refi option was initially restricted to small businesses with CRE mortages maturing by end of 2012.  After extensive NAR lobbying, small business borrowers will be allowed to refinance certain CRE loans maturing after that date.
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