The Best-Kept Secret in Commercial Real Estate Financing

What Real Estate Brokers Need to Know About the SBA 504 Loan Program:

It’s no secret that commercial credit is hard to come by these days. More than a few lenders remain reluctant to lend, even to borrowers with perfect credit scores. It’s not getting any easier for small business owners to get financing from conventional commercial lenders. It’s a big problem for commercial real estate brokers. If your clients can’t get funding to purchase the property you’ve helped them find, then nobody gets paid.

If your small business clients are having trouble securing financing for their commercial real estate loan, they may be looking in the wrong place. When it comes to commercial property financing for small business owners, the best option available is the SBA 504 loan. This loan program was created specifically for the purpose of financing fixed assets — commercial real estate and equipment — and it does the job very well. So what makes these loans so special?

SBA 504 loans are tailor-made for small business owners who want to buy commercial property or equipment to grow their business. Lots of entrepreneurs — and far too many bankers dismiss the SBA on the basis of its 7(a) lending program that always seems to be in a crisis needing supplemental appropriations. The 7(a)’s reputation may or may not be deserved, but some of its negativity has managed to soil other effective and lesser-known SBA programs.

SBA 504 loans, by contrast work; they work well; and unfortunately with some of the historical problems in the SBA’s 7(a) program, a dark shadow has hung over 504 loans for far too long making many people unaware of their benefits.

504 loans are very powerful. Borrowers with 504 loans get long-term, below-market, fixed-rate financing at better terms than are available from any private sector lender. That’s right — you didn’t read that wrong — SBA 504 loans for commercial property offer the least expensive money available to most small business. For several years, the SBA bond rate (which usually makes up 40% of the total project costs) has hovered near 6% fixed for twenty years. Loan terms on the first mortgage portion (usually 50% of the total project costs) are usually 25 years with no balloon payments and loan fees more in line with conventional lending than with other SBA programs. And if all of that wasn’t amazing enough, borrowers generally put a third to half as much money down for 504 loans (usually only 10% of the total project costs), thus enabling them to grow their business faster while getting the highest cash-on-cash return for their new real estate investment.

SBA Loan Myths and Facts:

1. SBA Loans Require So Much Paperwork  – This was certainly the case in years past, but not now. The SBA has done a lot to streamline its processes, and lenders that specialize in 504 loans have helped make the application and approval processes no more involved than any other conventional commercial loan.

2. SBA loans take forever to close – Again, this is a myth from the past. Best-case scenario, a 504 loan can take only 35 days from the first phone call to the closing table (I’ve seen it done in 26 days by my company previously, and the appraiser wasted many of those days). Typically, these projects should take an average of 60 days to close, depending on the borrower and the lender, perfectly in line with most commercial property contracts.

Do you know the Best-Kept Secret in Commercial Real Estate Financing?

You won’t hear about it from most ordinary lenders, but all small business owners need to know about the SBA 504 loan. We believe that this is such an important tool for small businesses that we’ve made it our sole focus — it’s all we do!

Commercial real estate brokers who are familiar with the SBA 504 loan program can help their small business clients make smart decisions when it comes to commercial property financing.