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Businesses Find Cheap Capital in SBA Mortgages
FOR YEARS, A LITTLE-KNOWN Small Business Administration lending program known as the 504 has stood in the shadows of the agency's flagship loan program, the 7(a).
But now, as banks tighten their lending practices and commercial office space becomes cheaper in some markets, a growing number of business owners are turning to 504 loans. These loans can be used to purchase business real estate or fixed assets (such as heavy equipment or machinery). And, because 504s are backed by the government, they're typically easier and cheaper to secure than conventional commercial mortgages.
Here's how a 504 loan works. A small business decides to purchase, say, a commercial office building for $1 million, which includes renovation work plus "soft" costs such as permit and design fees. To finance the purchase through a 504, the borrower must put down at least 10%, while an SBA-certified nonprofit agency lends another 40% through a government-backed bond offering. Then, a commercial bank or other lender provides the remaining 50%. Typically, the money is loaned at below-market interest rates, for longer terms than most commercial mortgages (say, a 20-year term rather than a 15-year term), making it more affordable for the average small-business owner.
The 504 "is a product that has so many advantages that it sells itself," says Roslyn Goldmacher, president of the nonprofit Greater New York Development Co., a Bethpage, N.Y., certified development company, or CDC, that specializes in 504 loans. "The biggest issue is awareness." The 504 is more complex than most conventional loans and therefore isn't well-marketed, she explains. And historically, many lenders have veered away from the 504 just to avoid all of the extra rules and steps (such as finding a partner CDC) involved.
But things are starting to change. "I would certainly say there's a lot more players now then there were three years ago, [when] we were one of the only banks that were pursuing this aggressively," says Laura Larson, SBA program manager with KeyBank in Cleveland. Now, with the economy unsteady, banks are more interested in making low-risk loans such as the 504, which is secured by the property and government bond, she says.
Recent Comments
redowlb 10:42:21 PM Nov 28 2008
How well you do in acquiring an SBA or for that matter any kind of commercialloan depends on how experienced the person putting it together and presentingit to the lenders with you is. I was in this business for several years and obtainedmillions in financing for my clients. My advice before they started? Exhaust allother means first. Why? Because institutions who loan become your partner and;as the saying goes: "the man with the gold calls the shots."
golfkartkaddy 02:06:38 PM Sep 12 2008
You can have all the paperwork you want unless your company is turning a huge profit banks are not lending!!! If thing are going well and you want to invest more to make something really take off the Banks are still saying no!! www.golfkartkaddy.com ENTER score in the promotional box and recieve 20% off!
flipsbuddy 06:21:05 PM Aug 24 2008
IT IS TIME TO GET RID OF THEM AP WRITERS. THEY ARE FOR THE OILCOMPANIES,AND WILL NEVER WRITE THE TRUTH. THE INVESTERS KNOW WHAT THEY ARE DOING WITH THERE MONEY.
stateman26 06:11:39 PM Aug 12 2008
neuticles 02:20:22 PM Aug 06 2008 Report This! SBA is a joke. Try getting a single cent from them.------------------------------------------------------------------------------------------------Also one of the most wasteful US Govt. agencies of them all. Their so-called "minority business" assistance has turned out to be a farce. It is neither "assistance" nor is it for "minorities". Reagan, G.W.H. Bush and his worthless son Dubya turned into a wasteful corporate statist feed bag for small business Republican donors.
stateman26 06:07:13 PM Aug 12 2008
stateman26 06:04:17 PM Aug 12 2008 Report This! The American business socialists cannot survive without Big Government and Uncle Sam to save their butts. Marx and Lenin are right. They will dig their own burial plotsThe Fed and Treasury Department will own not only Fannie and Freddie in due course, but own the entire US banking system. A fetid cesspool of malfeasance, corruption, and incompetence. Send the CEOs and bankers to prison and vote for RALPH NADER AND THE LIBERTARIAN PARTY CANDIDATES FOR CONGRESS.
stateman26 06:04:17 PM Aug 12 2008
The American business socialists cannot survive without Big Government and Uncle Sam to save their butts. Marx and Lenin are right. They will dig their own burial plots.
c3financial 09:36:11 PM Aug 09 2008
I have been providing SBA 7A and 504 loans for a while and they are the best kept secret in the US.These two types of loans are truly worth exploring.
mossypond 10:12:20 PM Aug 06 2008
I'M LOL! FOR THE PAST COUPLE OF DAYS AOL'S BEEN RUNNING AN ARTICLE THAT SAYS "SMALL BUSINESSES" HAVE SAVE THE ECONOMY. NOW, I READ THAT MORE SMALL BUSINESSES ARE IN TROUBLE AND TURNING TO SBA LOANS.WELL, AOL, WHICH IS IT??? SMALL BUSINESSES CAN'T BE SAVING THE ECONOMY AT THE SAME TIME THEY'RE IN TROUBLE!
landpermits 04:52:54 PM Aug 06 2008
20 years ago I was going to apply for an SBA loan. After looking at all the hoops I would need to jump through I just raised my money privatley. In the end I had less government and a better company.
abmleasing 03:11:04 PM Aug 06 2008
I most definitely have a faster , less costly,and proven way to raise cash needed for equipment. It's called "Commercial Leasing"!With Leasing you avoid entirely the long drawn out process requiring massive documentation, (which requires a small business to pay an accountant for Financial Statements, etc.)Many smaller businesses are owned by individuals who have enough Government scrutiny in their lives.Commercial Leasing is most easy. We were fortunate enough to be referred to a terrific group of folks who had us fill out a 1 page form, and as promised, within 24 hours we were "approved" for $70,000.00. We signed a 1 page Lease Agreement the next day our suppliers were issued Purchase Orders by our Leasing Company *(ABM at: 480-563-9888) and the following week we received all our new equipment from 3 separate Vendors.We were even guided as to "which Lease" would provide the most Tax Shelter by these folks.Leasing is the way!Carl DavisCorporate Office (480-538-0358)
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