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Commercial Finance Update: October 2014
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Commercial Finance Update: October 2014

Happy New Year! (In October?)

The SBA’s fiscal year began on October 1st, so SBA lenders nationwide are working on their resolutions. Probably lots of the usual stuff: eat better, quit smoking, join a gym, do more loans, etc. We’re not big on new year’s resolutions, so we’ll just keep helping small business owners. Business as usual. We’ll probably take a break to do some Halloweening later this month, but that won’t deter us from providing the best commercial real estate financing experience for small business owners nationwide.

Featured Project:
Safe ‘n Secure Garage Door
Specialists, Inc. dba Besser Bros.

– $1.05 million total project cost
– 7,088 sf Industrial building (acquisition)
– Santa Ana, CA
– 8 jobs created/retained

In the early 1990s, Byron Burland moved from South Africa to Southern California. He opened Safe ‘n Secure Garage Door Specialists in 1994, focusing on sales and service for residential home owners and developers. The company expanded into Orange County in 2000 and continued growing thanks to new HOA clientele, online marketing, and traditional word-of-mouth. In 2005, Safe ‘n Secure acquired Besser Bros. — one of the largest and oldest garage door companies in the area — whose owners were retiring. The company continues to be the finest full-service garage door company in Southern California.

Typically our clients purchase or build larger facilities to accommodate growth or expand operations, but Besser Bros. bought a building that was slightly smaller than the one they previously occupied. Seems strange, but there’s a good reason. At the old location, company trucks had to be parked inside the warehouse because they were loaded with tools and parts. They couldn’t risk someone stealing anything valuable, so much of the warehouse was used as parking space. The new property features a fenced-in yard that will protect the vehicles and equipment, and will give the company about 5,000 more usable square feet for inventory.

Each and every one of our small business clients has a different and unique situation. Just like there’s no one-size-fits-all commercial property for every business, there’s no one-size-fits-all approach to commercial real estate financing. Sure, we only specialize in SBA 504 loans, but each project is different and requires individualized attention and problem solving.

Tip of the Month: Be Patient

waiting

Buying or building commercial real estate for a small business isn’t something to rush into. It’s a big decision and requires a lot of due diligence, patience, and flexibility. It’s sort of like buying a home, except that it’s not really at all like buying a home. It’s a complex transaction — one that we’ve spent years refining and perfecting.

Let’s assume you found the perfect commercial property for your business. It’s the right location, right price, and it has everything you need (no construction or renovations). It’s possible that a project like this can get to the closing table in 30 days (we’ve done it before), but it’s not the norm for most of our clients. There are many more moving parts to a commercial loan than a residential one, and any unforeseen hiccup along the way can cause a delay. Even though small business commercial real estate financing is all we do and we’ve been at it for more than a decade, it’s very hard to predict what to expect at every turn during the process.

For example, we worked with a small business recently who wanted to purchase and renovate two office buildings. The two buildings were built in the early 1970s and appeared nearly identical. Our client knew from an early inspection that renovations would be required to remove asbestos that was found in the walls and ceilings. When the demolition crew began working on the drywall and ceiling tiles, they found that one of the buildings lacked proper structural support and required a great deal of unplanned-for work to be done to bring it up to code. Even though this is an extreme example of a “hiccup” during the financing/construction process, it’s a real situation that we and our client had to face.

So…since we’ve been doing this for more than a decade, we should have ironed out all the kinks by now, right? Well, we’ll probably be able to get your project done quicker and with fewer headaches than other commercial lenders. But every project is unique, with its own set of challenges. Our experience and expertise makes it possible for us to anticipate, react, and work through the myriad obstacles that can hamper a commercial real estate loan. That’s what you get when you work with an SBA 504 loan specialist like us. We know better than to try to sell you on promises that are impossible to deliver. You can trust us to give you straightforward and honest answers to all your questions about small business commercial real estate financing.

About SBA 504 Loans

– Up to 90% loan-to-cost financing for owner-occupied commercial real estate
– Office, industrial, medical, flex, daycare, retail, self-storage, and flagged hotel
– Total project costs up to $15 million
– Less impact on cash flow means greater flexibility for property owners

Our SBA 504 loans (sometimes we call them SmartChoice Commercial Loans) have a three-part structure, which is ultimately beneficial for both our small business clients and for third-party lenders we work with. A typical project has a 50-40-10 structure, and we’re dealing with the total project cost which includes the purchase price of land and/or existing building(s), construction costs, soft costs, closing costs, and equipment. This means our clients’ out-of-pocket costs are kept to a bare minimum.

The 50% 1st mortgage is an ordinary commercial loan provided by a third-party lender. This is at market rates and can have up to a 30-year amortization. Current rates for this piece will be in the 5.25%–6.25% range. The 40% 2nd mortgage is a below-market, fixed-rate bond with an SBA guarantee. This piece is fixed for 20 years and has a 20-year amortization. Current rate is 4.82% (as of October 2014).

Small business owners are required to put down as little as 10% of the total project cost, which is two to three times less than ordinary commercial loans require. Equity in land (if it’s already been purchased) and soft costs (like architectural and engineering fees) can count toward the equity requirement. The interest rates from the 1st and 2nd mortgages blend to an effective rate that’s hard to beat with ordinary commercial real estate financing. For a total project cost of $10 million, the blended rate would be 5.28% and the approximate monthly payment would be $57,156 (all rates and figures are current estimates at time of issue).

For customized loan scenarios and payment calculations, download our SmartChoice Commercial Loan Calculator for your iPhone or Android device today.

**Note: Additional equity is required for certain projects involving companies that have been in business less than two years and/or properties that fall into the “special-use” category. Thus, the 50-40-10 structure is typical but not guaranteed.

How can we help you?

Whether you’re a small business owner who wants to own commercial property for your business…or you work with small business clients who do…you may have questions and/or concerns about commercial loans. We want you to know that we’re here to help. Even if an SBA 504 loan isn’t the best solution for your project, we’ll let you know right away and help point you in the right direction. We’ve built our business on being good at what we do and shooting straight with our clients and referral partners. Quick answers and unparalleled expertise is what you’ll get when you call or email or fax or tweet or drop by our offices. Let us know what questions/concerns you’d like us to address. You can even leave a comment below so others can see your question and read the answer (chances are, someone else is wondering the same thing you are).

Upcoming…

We’re currently working on a series of videos and blog posts all about construction financing. It’s something that’s become a specialty of ours in the past few years, and many other lenders are often too risk-averse to take on many construction deals. We’re going to explain what you need to know about small business construction projects so you know what you’re getting into before you get into it. We hope it’ll be a helpful, magical thing.

Happy New Federal Fiscal Year!

– Your 504 Experts

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9 Comments

  1. Warren Kimbrough says:

    Is it possible to do a loan with Owner Financing (10%) & and a 1st and 2nd with no buyer out of pocket? Can you use this type of funding with Auctions?

    • Justin Fricke says:

      Hey Warren,

      We can accept some seller carry back, but the seller can’t carry back the entire down payment. Our borrowers do need to have some skin in the game.

      Auctions are a little tricky with 504 financing. I sent you an email earlier today with some additional info. Take a look through that email and feel free to respond to that email or give me a call (407-786-5040) if any additional questions come up.

      I’d be more than happy to help you out however I can.

      Justin Fricke

  2. Dr. Gary Carter says:

    I have the opportunity to develop a property near my house which was a farm (31 acres) into a reception facility and restaurant. It would bring in many jobs to our town and support many other businesses in the area.
    Are loans available for property and construction?
    The land is 2.2 million and the construction is not estimated yet.
    Thank you.

    • Justin Fricke says:

      Dr. Carter,

      A reception facility and restaurant is certainly eligible for SBA 504 financing, our specialty.

      I emailed you some information earlier today about the loan process and how we can get moving forward with your project. I’d be happy to answer any additional questions that might come up and I’m looking forward to working with you on this.

      Justin Fricke

  3. Dr. Gary Carter says:

    I have another option in an adjacent town of a magnificent property already built to the configuration of the reception facility I would envision. I could make a part of it my permanent residence. The cost is 5.5 million. Look at sunsethallestate.com
    What loan options can you suggest for this property?

    • Justin Fricke says:

      Hi Dr. Carter,

      Adding in a personal residence certainly changes things a bit. I sent you an email earlier today, shoot me a response or give me a call (407-786-5040) and I’d be happy to discuss this project with you a little more in depth.

      Justin Fricke

  4. Pamela J. Johnson says:

    I am interested in constructing a 40unit /44 bed Affordable Assisted Living Facility regulated by the Arkansas Health Service Permit Agency. I have site control of most the land and should not have problems purchasing the other two parcels for the current building plans I have. The land value with the constructed facility will average around 172,000.00. Can I receive a 504 loan with this current status.

    • Justin Fricke says:

      Pamela,

      Everything sounds eligible for SBA 504 financing. I sent you an email earlier today with our Pre-Approval Application and some details on the best way to get moving forward with your project.

      Looking forward to working with you soon!

      Justin Fricke

      • Pamela J. Johnson says:

        Can you resend this information. I did not see the information you stated you sent. I also checked my spam box.

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