If you are thinking of purchasing or refinancing a commercial property in the near future, you must familiarize yourself with a great financing option offered through the U.S. Small Business Administration (SBA). There are two main programs available through the SBA: 1.The SBA 504 Program and 2: The SBA 7a Program. These types of financing have been around a long time but in this depressed economy, it is the savior of many a commercial/industrial real estate deals.

To give you some perspective on how this program has gained in popularity, in fiscal year 2010, SBA supported more than $22 billion (54,833 loans) in lending to small businesses through its two largest loan programs, compared to more than $17 billion (47,897 loans) in fiscal year 2009. The average weekly loan volume for fiscal year 2010 was $333 million, which was a 29 percent increase over the average weekly loan volume of $258 million for fiscal year 2009.

The SBA funds a portion of the project or guarantees a percentage of the loan depending on which program is chosen, but in general the SBA takes away a lot of the risk for the commercial bank in the event the loan goes bad. Whereas a commercial lender may not be willing to make a conventional loan (where the bank typically absorbs 100% of the risk) that same lender will often be a willing participant with the government absorbing a percentage of it.

We have been able to accomplish (close) a number of sales in the past year that otherwise would not have happened by using one of the SBA programs. Most people don’t realize this is a legitimate option, primarily for owner occupied buildings where owners occupy at least 51% of the available space. It also works for people buying businesses, WITH or WITHOUT real estate involved.

Years ago, the SBA gained a reputation for being a paperwork “boondoggle”. A loan could take months to get processed and approved. NOT ANYMORE! The SBA has created a category of “Preferred Lenders” that have loan underwriting authority. This type of lender accepts responsibilities for analysis, structure, approval, servicing and liquidation of loans. They do this work in house so your loan package does not have to be sent to a government processing facility to be processed by some bureaucrat that has no incentive to get your loan approved.

The benefits of an SBA loan are several:

1. Down payment requirements as low as 10%. Conventional loans usually require 20-30% or more down IF you can find a bank who will make such a loan.
2. Fully amortizing loans for periods of up to 25 years vs. conventional commercial loans of 15-20 year amortization periods (this keeps payments lower).
3. Competitive interest rates, todays rates are 6% or below.
4. With an SBA 7(a) Business Loan, you can finance or refinance equipment and working capital as part of the loan package.
5. Processing fees can be amortized into the loan.
6. The SBA 7a Loan Program has no loan covenants other than making your payment on time. Thus as long as you are making your payments on time your loan can never be called because of cash flow problems, commercial real estate values, net worth issues, or future credit problems. You never have to worry about a renewal again.

Some common complaints (to be fair and balanced) about SBA loans are they have higher up-front fees than conventional loans, there are often prepayment penalties, and the amount of documentation required is substantial. These are minor complaints, in my opinion, compared to the benefits.

Many owners of commercial buildings have loan renewals coming up in 2011 and their current lender might not want to renew the loan. Even if they DO want to renew the loan, the terms may be unattractive. So, if you are re-financing this year, call us to see if you are a candidate for an SBA 7(a) or 504 loan. If you want to buy a building to run your business out of, this financing vehicle may be the ideal solution for you as well. Because prices are so depressed right now, taking advantage of the one government program that actually works, can help you buy or re-finance a building at a tremendous savings.