Commercial Loan Direct - Blog

On May 31, the Small Business Administration (SBA) will run out of money for the breaks that revitalized its lending programs. The Economic Stimulus Bill that passed in February 2009 increased the government guarantee on the SBA’s flagship 7(a) loans to 90% (up from the typical 75%) and reduced fees on 7(a) loans and the SBA’s 504 loans, which primarily are used for real estate.

These enhancements made SBA loans less risky for lenders and more affordable for borrowers. As a result, SBA lending rebounded. Through May 14, more than $9 billion in 7(a) loans were made this fiscal (October 1) year. That’s nearly twice as much money as was loaned through the program during the same period a year earlier. Nearly $3 billion in 504 loans were made, up nearly $1 billion from a year earlier.

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The USDA B&I loan guaranty program, historically underfunded and a difficult program to actually close loans through, is gaining renewed popularity under President Obama’s American Recovery and Reinvestment Act of 2009 (“Recovery Act”). With Recovery Act funding, the USDA can guarantee up to 90% of a loan – 80% is normally the maximum guarantee. The one-time guarantee fee – normally 2% – is reduced to 1% and the annual renewal fee also is waived for loans made with Recovery Act funding. Most important, the program has guaranty capacity. Here’s a quick overview of the SBA program

The debenture pricing for May 2010 was completed today and
the SBA 504 rate is 5.52% --- fully amortizing and FIXED for 20 Years!

There is also a 10-year SBA 504 loan for equipment (long-term useful life of at least 10-years). The rate is 4.60% for this loan, which is sold every other month.


The SBA 504 loan program was designed to provide up to 90% financing to small to medium sized business owners looking to purchase commercial owner occupied real estate. The typical structure includes a 50% first mortgage by the Bank/Lender, followed by up to a 40% second mortgage by the SBA; leaving the Borrower with the remaining 10% equity injection.

On April 15, 2010, the President signed legislation that provides additional Recovery Act funding available to pay the CDC Processing Fee and the Third-Party Lender Participation Fee until May 31, 2010.

SBA Loans - SBA 504 Program

How do the capital markets compare from 2009 to 2010?
We are seeing some improvement in lending conditions during Q1 2010 from 2009. We believe the capital markets will continue to thaw at a slow pace during 2010. Lenders are open for business but underwriting continues to be conservative. Agency lenders (FNMA, Freddie, HUD) continue to be the lender of first choice for apartments. The Life Companies have taken a more active role in financing CRE in 2010 with LTVs typically 50-70% and rates between 6% and 7% fixed for 5 to 10 years. In addition, several new banks have entered the market with multi family family programs. LTV's as high as 75% for purchases, rates in the 5.75-6.75% range fixed with a 10/25 structure, full recourse. Conduits have entered the market cautiously (LTVs to 65%, Rates 6.26-7.5%, 5-20/25, non recourse). Small and medium size banks are mostly on the sidelines.
Commercial Loan Direct - Conduit Loans - CMBS - Nationwide

New Funding for SBA 504 & 7a Fee Offsets -
by CommercialLoanDirect.com

U.S. Senator Mary L. Landrieu (D, LA), Chair of the Senate Committee on Small Business and Entrepreneurship, commented on the passage of the extension of several American Recovery and Reinvestment Act (ARRA) provisions that were set to expire on April 30, 2010. The extension provided $80 million to extend the higher guaranty for 7(a) loans and fee waivers for borrowers of 7(a) and 504 Small Business Administration loans. These measures complement recently enacted small business tax incentives included in the HIRE Act, such as the new hire payroll tax exemption and the extended Section 179 small business expensing provision. The U.S. Senate voted 59-38 to extend until May 31, 2010 provisions that eliminated borrower fees for small businesses looking to grow their companies.

Sen. Landrieu said, "The Recovery Act provisions extended tonight will continue to free up credit for small businesses looking to expand, hire new workers, or upgrade equipment. I applaud my colleagues in Congress for recognizing the success of these lending programs, and thank them for their continued support of small businesses across the country. Ranking Member Olympia Snowe has shown her commitment to true bi-partisanship for the good of small businesses still struggling to stay afloat. As we continue to support America's entrepreneurs, we must continue to look at a longer term extension of these provisions to continue this country's small business growth. The Small Business Committee has a package of proposals that have passed the Committee by wide bi-partisan margins, and we will continue to work on their inclusion in the next jobs bill debated by the Senate and urge their swift adoption."

CommercialLoanDirect.com SBA-504
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CommercialLoanDirect.com news update Commercial Mortgage Alert reported that although nine CMBS conduit lenders are actively seeking CMBS conduit loans for the first multi-borrower CMBS transaction since the CMBS market stalled in 2008, progress on accumulating loans for securitization has been slow. Informal discussions with the conduit lenders revealed that no lender has accumulated over $100 million of loans, well below the estimated $500 million needed to create an economical CMBS issue. As a result, a number of conduit lenders likely will team up to create a CMBS issue in excess of $500 million. Based on the slow pace of closings, a new multi-borrower CMBS issue may not be seen until at least the summer.
CommercialLoanDirect.com offers conduit loans nationwide

The purpose of the SBA 504 Loan Program is to provide healthy, expanding businesses with long term financing (with low interest rates) for the acquisition of land and building, machinery and/or equipment, and construction and renovation. The 504 Loan Program, established by Congress in 1986, is the first national financing program to recognize contributions of small and medium sized businesses toward local economic development and job growth in the U.S. This financing is specifically designed to meet those needs.

www.CommercialLoanDirect.com can help you obtain a SBA 504 commercial loan.

Comercial loans for healthy expanding businesses.
Fixed rate below market financing.
Financing for fixed assets: real estate, machinery and equipment.
Terms of 20 years for real estate, 10 years for machinery and equipment.
Eligible Borrowers:
•For profit businesses (corporation, partnership or proprietorship)
•Tangible net worth not to exceed $8.5 million
•Net profit after taxes not to exceed $3.5 million during previous 2 years
Maximum Amount
Up to 40% of eligible cost, with a $2,000,000 debenture maximum. Manufacturers are eligible for up to $4,000,000 (request details). Total project size is unlimited.
Use of Funds
•Purchase of land
•Construction of building

•Modernization, renovation or improvement of building

•Purchase of machinery or equipment with useful life of 10 years or more
Financing Method

Private lender provides 50% of project cost, and the Small Business Administration 504 Loan provides 40%.
Equity Requirements
At least 10 percent.

504 Loan Terms:

•Maximum of 40 percent of project
•Terms of 20 years for real estate, 10 years for machinery and equipment. 504 loans are fully amortized.
•Fixed, below market interest rate.
•Total fees of 2.15% plus an attorney closing fee. These fees can be included in the 504 loan amount and financed over a 20-year term.
*** It is important to note that most fees are being waived as part of the new economic stimulus package. Click here to learn more.

Application Process:

Generally a summary of project cost estimates and two (2) years of financial statements should be available to discuss eligibility of the small business for the 504 program.

Term: Maturities of 10 and 20 years are available on the 504 debenture, depending on the useful life of the assets. A minimum of 10 years is required from the private lender on real estate financing and 7 years on machinery and equipment.

Collateral: Second Mortgage and / or lien on assets purchased with proceeds of 504 loan.

Personal Guarantees: Personal guarantees of the principals (ownership of 20% or more) are required. Corporate Guaranties are also required.

Down Payment: The small business concern must provide at least 10% of the project cost as equity or subordinated debt.

Typical Structure:

•50% first mortgage from private lender.
•40% second mortgage from FBDC (100% SBA guaranty)
•10% equity or subordinate debt.
Project Example Entity Loan Amount Percent of Project Term Interest Collateral
Private Lender $500,000 50% 10 years Market 1st Deed of Trust
CDC/SBA $400,000 40% 20 years Market 2nd Deed of Trust
Business/Borrower $100,000 10% n/a n/a n/a


For information on rate of interest go here.

To find out how www.CommercialLoanDirect.com can assist your business please contact us.

Commercial Loan Direct is delighted to launch this blog. The main purpose of the blog is to inform consumers about commercial real estate backed loans including; apartment mortgages, SBA 504 loans, SBA 7a loans, USDA loans, commercial loans, and conduit finance. The current financial environment can make obtaining a commercial loan challenging. However, there are many products (including government sponsored programs) that are more appealing than ever.

Our seasoned commercial mortgage loan officers are at your disposal free of charge to answer any question you might have.

Best regards,
CommercialLoanDirect.com

Commercial Loan Direct - SBA Loans update
The SBA announced the ARRA 504 Loan Program Debt Refinancing interim final rule in today’s Federal Register [June 23, 2009, Volume 74, Number 119, page 29589-29592]. Debt refinancing as an eligible 504 Project Cost is a permanent change to the 504 Loan program, not just a temporary stimulus initiative.

This new debt refinancing authority will allow expanding small businesses to restructure qualified existing debt as part of new 504 loans. This will enable small business owners to free up critical capital to expand their businesses and create jobs.

The interim final rule is effective as of the date of publication – June 23 - and is a permanent change to the 504 program. A copy of the Federal Register Notice is attached or may be downloaded from http://edocket.access.gpo.gov/2009/E9-14886.htm. Also attached are SBA Policy Notice 5000-1108 with the changes to SOP 50-10(5)(A) for debt refinancing and SBA Information Notice 5000-1109 announcing that Version 2009.1 of the Authorization will be released. NADCO is coordinating with SBA to notify you as additional SBA Notices, the updated Authorization Wizard and revised SBA forms are released. Updates will be provided as they become available.

ARRA Debt Refinancing Eligible Project Costs and Program Restrictions

The following list is the conditions that a Project must meet to be eligible for debt refinancing:

1. Debt refinancing is available for 504 loan applications received by SBA on or after June 23, 2009. Those 504 loan applications received or approved prior to June 23, 2009 may be modified to include debt refinancing provided that the debenture has not been funded.

2. The 504 Project must include expansion of a small business. “Expansion” is broadly defined to include any Project that involves the acquisition, construction or improvement of land, building or equipment for use by the small business.

3. Qualified refinancing - the existing indebtedness to be refinanced may not exceed 50 percent of the Project Costs. The existing debt may consist of one or more loans and may be owed by an Operating Company, an Eligible Passive Company or both. Existing debt may include instruments that will result in transferring ownership of the property to the small business, including land sales contracts, contracts for deed or capital leases (but not operating leases). In addition, the existing indebtedness to be refinanced must meet the following conditions detailed in the new regulations and Notice 5000-1108, as follows:

1. The proceeds of the indebtedness to be refinanced were used to acquire land, including a building, to construct a building or to purchase equipment (that is, the assets acquired with the indebtedness to be refinanced must be 504 Project-eligible assets).

§ The debt being refinancing does not need to be for assets at the same location or for the same type of property as the 504 Project as long as the operation at the other location has the same NAICS code as the operation at the Project location.

§ An existing loan is disqualified from refinancing if it was used for working capital or any other purpose not eligible for 504 financing. However, where a portion of the existing loan was used for 504 Project-eligible assets, that portion is eligible for refinancing.

2. The existing indebtedness to be refinanced was incurred for the benefit of the same small business for which any new Project Costs are incurred. This includes existing 7(a) and 504 Loans or other loans from the Third Party Lender or CDC, as follows:

§ An existing 504 Loan must meet the conditions for qualified refinancing.

§ An existing 7(a) Loan may be refinanced in whole or in part only if the CDC provides verification that the present lender is either unwilling or unable to modify the current payment schedule. If the Third Party Lender or the CDC affiliate [as authorized under 13 CFR 120.852(a)] is the 7(a) lender, the 7(a) Loan will be eligible for 504 refinancing only if the lender is unable to modify the terms of the existing Loan because a secondary market investor will not agree to modified terms.

§ Only SBA may approve refinancing “same institution debt,” which means any debt of the CDC or Third Party Lender financing the new Project, or affiliates of either.

§ PCLP CDCs may not use their delegated authority to approve refinancing of same institution debt.

3. The existing indebtedness is collateralized by fixed assets with the following conditions:

§ The 504 eligible fixed assets collateralizing any debt to be refinanced, or relating to the portion of debt being refinanced in the case of a partial refinance, must also collateralize the 504 Loan unless SBA [the SLPC] approves a waiver due to extraordinary circumstances.

§ PCLP CDCs may not use their delegated authority to approve a 504 Loan requiring this waiver.

§ The lender of the existing indebtedness must release, subordinate or assign its lien on the 504 eligible fixed assets so that the Third Party Lender and/or SBA will maintain the same lien position on that collateral previously held by the lender whose debt is being refinanced.

4. The financing will provide a substantial benefit to the borrower when prepayment penalties, financing fees, and other financing costs are accounted for.

§ “Substantial benefit'' means that the portion of the new installment amount attributable to the debt being refinanced must be at least 10% less than the existing installment amount(s). Prepayment penalties, financing fees, and other financing costs must be added to the amount being refinanced in calculating the percentage reduction in the new installment payment.

§ Exceptions to the 10% reduction requirement may be approved by the Director, Office of Financial Assistance (D/FA) or designee for good cause,

§ PCLP CDCs may not use their delegated authority to approve a 504 loan requiring this exception.

5. The borrower has been current on all payments due on the existing indebtedness for not less than 1 year preceding the date of refinancing, as follows:

§ “Date of refinancing'' means the date that the 504 Loan is approved by SBA.

§ The CDC must submit a transcript of account or similar documentation containing detailed payment history from the lender whose debt is being refinanced reflecting that the loan to be refinanced has been current for one year (or for the time the debt has been open if less than one year).

§ Any unremedied delinquency after 504 Loan approval must be reported to SBA as an adverse change.

6. The refinancing will provide better terms or rate of interest than the existing indebtedness on the date of refinancing.

§ “Better terms or rate of interest” may include, but are not limited to, longer maturity (but always commensurate with the fixed assets' useful life), a lower interest rate committed on the Third Party Loan or projected on the 504 Loan, improved collateral conditions, or less restrictive loan covenants

7. The 504 Loan proceeds may not be used to refinance debt owed to the following:

§ An Associate of the 504 Loan applicant

§ An SBIC

§ Any creditor in a position to sustain a loss causing a shift to SBA of all or part of a potential loss from the existing debt.

4. Whether the new Project is within the CDC’s Area of Operations is based on the assets newly acquired for the small business and not on assets securing the debt being refinanced. If the assets being refinanced or any collateral securing the refinanced loan are outside the CDC’s Area of Operations, the CDC must establish that it is capable of closing and servicing the loan and monitoring the collateral.

o Non-PCLP CDCs must submit evidence to SBA (the SLPC) for approval that the CDC is capable of closing and servicing the loan and monitoring the collateral. PCLP CDCs must document the file with evidence of their capability.

5. For debt refinancing loan applications, CDCs must submit the following:

0. Non-PCLP CDCs must include, in the loan analysis, a conclusion that the proposed debt refinancing meets all the conditions and they must submit their supporting analysis and documentation as Exhibit 24 to the application. Documentation includes:

§ Copies of the debt and lien instruments for the debt being refinanced

§ The transcript of account or equivalent showing that the debt to be refinanced has been current for one year

§ If a 7(a) loan is being refinanced, verification that the existing lender is unwilling or unable to modify the current payment schedule

§ Evidence of the CDC’s capability of closing and servicing the refinanced loan and monitoring the collateral if outside the CDC’s Area of Operations.

1. PLCP CDCs will transmit the Eligibility Information Required for PCLP Submission (SBA Form 2234, Part C) to the SLPC, in which the PCLP CDC is required to address the conditions for debt refinancing. PCLP CDCs must maintain the analysis and al required documentation in the file.



Restrictions for PCLP CDCs

Not all 504 Loans that include refinancing can be approved under the authority delegated to PCLP CDCs. The following may not be approved under PCLP authority:

· waiving the requirement that the collateral securing indebtedness being refinanced must also secure the 504 loan

· approving a good cause exception that there be at least a 10% reduction in the new installment amount attributable to the indebtedness being refinanced

· refinancing same institution debt held by the same CDC or Third Party Lender financing the new Project, or affiliates of either

Keep in mind that this is an interim rule and that proposed changes are being requested and may be enforced at a later date.

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