SBA Mortgage Financing
Filed Under Mortgage
SBA mortgage financing, i.e. an SBA loan that is tied to commercial real estate, is by far the most viable type of small business financing that is available today. The reason is of course, that the bank has a hard asset as collateral.
As far as unsecured or “business goodwill” type loans, we are seeing most banks completely pull out of this sector. A year ago, for example, we had 20 banks that would do franchise loans, tenant build out and working capital SBA financing. Now however, these uses of proceeds, unless backed by real estate are very difficult to get done. We have two banks that we know of, that will still really consider these types of loans. And one of the two is very bureaucratic.
SBA Mortgage Financing – 7a or 504?
If you’re considering an SBA mortgage, you can start off with the self directed questions of “am I refinancing or attempting to purchase and property?” If it is a refinance, then the SBA 7a loan is your main option, as it is allowed per the SBA regulations. Though there has been some talk from the Feds about allowing the 504 to be used for a refinance, it is not a reliable option.
If you’re considering a purchase, than the 504 or 7a could be an option. On smaller loans, i.e. less than $1,000,000 you should expect that most banks will want to take this the SBA 7a route, as it is an easier transaction for the bank to get done and they have a greater guarantee from the government at 90%.
Larger transaction $1,000,000 to $5,000,000 will fit the SBA 504 box nicely. These loans are often a preferred option as well, due to the long term fixed rates and high level of financing at 90%. However, one of the negative with the 504 is the high prepayment penalty compared to the 7a. If you’re planning on selling the property in 3 -5 years, or think that there is a good possibility, than the 7a is going to be a better option as the pre payment penalties on this are much cheaper.
SBA mortgage financing is viable. These types of loans are still closing and will likely remain the most reliable form of financing over the next few years as we continue to deal with some of the biggest issues the banking industry has seen since the Great Depression.
Jeff Rauth is President of Commercial Finance Advisors, Inc. They close SBA and other commercial real estate loans between $400,000 – $5,000,000 nationwide. Reach him at 248 885-8797 or at SBA 7a Loans or SBA Business Loan or SBA Lenders
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