SBA financing sources
 

 

Low interest rates and falling property values, not to mention lots of available space, make now a great time for Alpharetta businesses that want to purchase commercial real estate or build new facilities. Unfortunately, many companies have a hard time coming up with the 20-25 percent down payment that's typically required for commercial real estate.

Well, there's lots of good news right now for commercial real estate buyers in Alpharetta. The U.S. Small Business Administration (SBA) offers several different types of SBA loan programs designed specifically to help small businesses obtain financing to buy, build or renovate commercial real estate.

And thanks to the American Recovery and Reinvestment Act (aka the Stimulus Act) passed earlier this year, many fees associated with these SBA loans have been waived for the remainder of this year.

Karen Cross, the chief credit officer and senior lender with Community Business Bank in Forsyth County, says there are two main SBA loan programs that can help companies purchase commercial real estate: the SBA 7a program and the SBA 504 program. "These work especially well for new and startup businesses where the bank may be hesitant because the business doesn't have a proven track record yet," she says.

The SBA reduces the bank's risk of lending to newer and less-established businesses by guaranteeing a portion of the loan, thus encouraging banks to lend to small businesses. The SBA typically guarantees 75-85 percent of 7a loans, but this was raised to 90 percent by the Stimulus Act for the rest of 2009. In addition, the guarantee fees of 2 to 3.5 percent of the guaranteed portion of the SBA loan are also being waived through the end of the year.

The typical structure of an SBA 504 loan is a 10 percent down payment by the borrower, 50 percent financing by the bank and 40 percent financing by the SBA. Borrowers must normally pay fees of 2 percent on 504 loans, but this fee is being waived this year for as long as the program's funds remain available (only about 40 percent of the funds had been used as of July). This would result in a savings of $20,000 on a $1 million loan. Owners can put this money to good use, perhaps on commercial real estate property improvements, for example.

"These SBA programs are especially helpful for businesses that have the cash flow to repay loans but don't have the normal down payment," says Cross. "They allow them to buy commercial real estate with as little as 10 percent down."

She adds that the interest rate on the SBA portion of 504 loans is typically between 100-150 basis points lower than the rate on the bank-financed portion. SBA loans can be amortized for up to 20 years with no calls or balloon payments. "SBA loans allow banks to take on a little more risk with new and start-up businesses than they normally would," says Cross.

As with any loan, a bank will consider a borrower's ability to repay the debt and whether the borrower can pledge sufficient collateral to secure the SBA loan. Borrowers will generally have to provide the bank with tax returns, financial statements, financial projections and other documentation just like they would if applying for a traditional small business or commercial real estate loan.

Some business owners don't bother applying for SBA loans because they don't think they'll qualify, but this is one of the biggest myths about SBA financing. The fact is that 97 percent of all U.S. businesses meet the SBA's definition of "small" and are, therefore, eligible to apply.

Brian Patton, CCIM, owner of Capital Realty Advisors, LLC, of Atlanta, Georgia, is an author, columnist, and speaker on commercial real estate issues. For helpful informational tips and videos on SBA loans, visit http://www.RealEstateTipsandAdvice.comand click on the "SBA loans" category.

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