Commercial mortgage loan business is really going through some tough times as of late and we are starting to feel some painful slow downs, especially in the conventional bank sector - on both owner occ and investment.

Bottomline though, commercial re investors are getting the worst of it.  With very few banks doing anything at all.  For example, we have several, very strong deals in process, with goods trends, good tenants, less than 50% ltv, 90% occpancy and even a few  where the borrower has more cash than the loan request, which we have been unable to place these deals. 

Government backed loans are the most viable area, and in contrast are experiancing an increase in approvals and fundings.  USDA's B & I program, as well as SBA business loans continue to fund.  These however are tricky programs and expert eadvice should be sought.    

Commercial Finance Advisors is pleased to announce the recent funding of an SBA 7a loan in Atlanta, Georgia in the suburban community of Buford.  The project was a combination of a commercial refinance, construction, equipment and working capital for the borrower, who is a doctor.

"There was a couple of interesting components of the loan.  One was that the borrower had already closed on the request with another bank, which after funding part of the loan backed out...   It was a construction loan.  This put the borrower in a terrible position and to say that he was frustrated and very concerned is an understatement.  He had to still make monthly payments on the debt even though the bank did not hold up their end of the bargain."  Comments Jeff Rauth, President. 

More info on SBA Business Loans

"The first bank essentially just ran out of money.  They are lucky (the first bank) we were able to get the new SBA 7a loan closed, otherwise the borrower would have had a very good lawsuit and more frustration to motivate him to pursue suing them for damages.  Unfortunately we are seeing more loan requests like this cross our desk."

SBA 7a loans are designed to help small business owners refinance or purchase new building for their business.  There are a couple of very strong benefits to the program.  One is that they can go up to 85% loan to value, which is a huge advantage as property values continue to decline in most markets in the nation.  Another is that the underwriting standards for the SBA 7a loan can be very flexible, which allows loans that don't fit conventional standards to still get funded. 

One of the other major benefits to the program is the ability to roll in many different types of collateral, such as real estate, equipment, and good will.  Borrowers are still able to get working capital and to consolidate high interest business credit cards as well. 

However, not all SBA 7a lenders are the same.  Just like a typical commercial real estate loan, borrowers need to know who the aggressive lenders are, and how to submit loans correctly to get them done. 

Commercial Finance Advisors, Inc works with borrowers nationwide, on commercial real estate loans from $400,000 - $5,000,000.  Most of their clients have dealt with many local banks and are "feed up" with getting the run around and now need to get their loan closed. 

Funding a commercial property loans in today's market is no easy task.  Banks either are scared to lend or worse, face their own liquidity issues.   Many borrowers are running around, scrabbling for options, often baffled by what their local banks tell them.  Loan to values requirements have dropped, borrowers cash flow and liquidity requirements are up. 

We hear borrowers often make comments such as. "I've been with my existing bank for 30 years, never missed a payment... now they will barely take my call."  Or "my local banks are offering me decent rates but the amortization schedules are capped at 15 years.  This will strangle my cash flow, and they don't seem to get it."  This is a frustrating time for many business owners and finding palatable commercial loans is often difficult. 

Borrowers need to break away from the limitations that their local banks provide.  There still are sources that have the capital and appetite to fund commercial property loans.  In fact, some aggressive and well capitalized banks/lenders are taking advantage of these times and "swallowing" large chunks of their competitor's market share. 

One of the best commercial real estate loan programs out there today, is the government backed variety.  On refinances they can go as high as 85% loan to value, which is such a critical point, as property values continue to decline.  Many borrowers that go with their local banks have a very unpleasant surprise when the $3,500 appraisal report comes in with a property value 20% lower than what was expected.  The borrower has a dead deal, and 2 months of wasted time to show for his efforts.  By being able to go up to 85%, borrowers hedge their bets on this issue.   

Another major benefit of the government backed programs is a reliability of funding.  This is one of those subjective issues, that's impossible to predict.  For example, you may go with a local bank and your commercial property loan request may fit all of their guidelines, yet the bank declines the file.  Why?  They may give you some random reason that makes no sense at all.  The committee may just not like the industry you're in, your personal history or they may just have a bad feeling about the deal.  Due to the economy this is happening more and more.

With a government guarantee, loans that fit the guidelines close.  The level of subjectivity is much less.  If it fit's, it funds. 

Jeff Rauth is President of Commercial Finance Advisors, Inc, a national commercial mortgage firm.  He specializes in Commercial Real Estate Loans between $400,000 - $5,000,000, nationwide.  Most of his clients do not have the time, and need to get their loan closed.  248 885-8797 or SBA 7a Loans  or Physician Loans

The SBA 7a loan has been getting a lot of press lately, as it is one of the most viable commercial real estate loans out there, and many business owners are trying to get a better understanding of the loan program.  Below are the typical questions that business owners have regarding the SBA 7a loan.    

Aren't SBA lenders the same?  Should I just work with a local bank?

Though the SBA has set guidelines, banks all have their own lending criteria, and what is considered a doable deal from one bank will not be to the next.  Many borrowers incorrectly think that the SBA funds loans.  They actually just guarantee the funding bank, that in case of borrower default, the bank will get their capital back. 

So the point being, you may get 9 declines from various SBA lenders, than find one lender that really likes your request.  Lending criteria/guidelines does vary.  There is a very good chance that best lender for your request is not local, but maybe located on the other side of the country. 

Also, some SBA 7a loans are structured in different ways.  For example, 99% of banks structure SBA 7a with an adjustable rate.  There are a few banks that offer the loan with a 3 to 5 year fixed rate.  Some other lenders have different focuses in terms of building types.  While some lenders won't even look at hotels requests, others banks focus almost exclusily on them, for example. 

Will the SBA monitor my business, after the loan closes?

Actually, not at all.   In fact the only time the SBA would get involved is if you default on the loan.  And the SBA would work with the funding bank to remedy the loan, not the borrower.  There is no need to fear a "Big Brother" element with an SBA 7a loan. 

How long does the an SBA 7a Loan take to Close?

It should take approximately 60 days to close.  It is very important though to seek out and work only with lenders and banks that very experienced with doing SBA 7a loans.  Many banks, including huge ones, have never done a single SBA loan, so borrowers should be careful with this. 

If the borrower works with an "approved lender" the loan gets underwritten only once and the process should take around 60 days to fund.  This timing is normal, relative to all other  commercial mortgages.  If they work with un unapproved SBA lender, the loan will have to be underwritten twice - once by the bank, than by the SBA. 

I've heard the SBA paperwork is intense and require a lot of special forms?

Today's SBA loans require about the same amount of paperwork and effort as a typical commercial mortgage.    

SBA business loans are one of the most reliable sources of capital in today's credit crisis for small business owners.  The programs boasts the highest level of financing in the business and is ideal to roll in working capital, business debt, and equipment loans.  It might just be the best program out there for your request. 

SBA business loans are one of the most popular commercial real estate loans in the nation, and for good reason.  They boast flexible underwriting, high leverage and the ability to roll real estate debt, equipment, debt consolidation as well as working capital debt into one loan.  They have been created specifically for the needs of small business owners. 

Many people are under the impression that the SBA funds loans, actually banks and lenders fund the loans and the SBA guarantees the debt repayment to the lenders.  I.e. if the borrower defaults on the loan, the SBA will step in and pay the bank back for any lost capital.  Because the banks get this guarantee from the government, they are that much more willing to lend and to do more risky loans.    

Again, banks actually lend the capital, therefore many of the underwriting restrictions are set by the bank, not the SBA.  In fact, most SBA business loans that are declined, are declined by the funding bank not the Small Business Administration guidelines. 

One of the major benefits to the SBA business loan programs are the high level of financing offered.  For example, 90% on purchases and 85% on refinances.  Conventional commercial financing in contrast is capped at 60-65% loan to value.  This can be a huge difference for a small business owner that needs to keep as much cash on hands as possible.   

SBA Business Loan Guidelines

As far as the SBA guidelines are concerned, the borrower must fit their restrictions as well.  Repayment ability from the cash flow of the business is vital.  Typically borrowers will have to show enough net income off of their last 2 years of tax returns to cover the proposed loans payments.  So again, cash flow is critical.  In addition, good character, meaning decent credit scores, and management experience are important.  The collateral's condition and value are also important and reviewed.  The borrowers "equity contribution" in the case of purchases is also considered.  The SBA also requires a personal guarantee from all borrowers with a 20% or more ownership. 

The SBA guidelines have been written to be as broad as possible, though a few more restrictions include that the business must be for-profit, and not already have the internal resources to do the loan, are required to get the requested financing.

SBA Business Loan

A major misconception with borrowers is that all SBA business loans and lenders are basically the same, i.e. "if we get declined from one source, we must not be eligible."  This is not the case, as mentioned above most loans get declined from banks, not the SBA.  So it pays to keep looking. 

Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan.  He specializes in SBA 7a Loans nationwide. 

Business owners that are looking for viable commercial mortgage loans should look hard at SBA financing.  These loans continue to close and relative to other sources of capital, like conventional bank loans, SBA financing is much healthier.  In addition, SBA loans have many advantages over conventional financing, which we discuss below.   

But first, let me address a few common concerns with SBA financing.  The SBA has a bad reputation with many, as being overly cumbersome.  And granted, if you work with the wrong bank, you will likely double the processing time to get the loan done.  Many banks that are not fully focused on SBA loans, will have to have their loans underwritten twice, once by the bank, than by the SBA...  If you go with the right source, your loan will only have to be underwritten once. 

The other common concern is that people have a misperception that if one bank declines the file that the loan request must not fit the SBA guidelines and is not eligible.  People need to keep in mind that banks finance deals, the SBA only guarantees the debt for the bank...  And banks guidelines are almost always more restrictive than the SBA's.  If you have been declined, keep looking and find out why.    

Commercial Mortgage Loans Vs SBA Loans

Highest loan to value in the business.  SBA loans go up to 85% financing on refinances and 90% on purchases.  In addition, it is common to roll all cost of a project into a loan.  For example, if you where purchasing an office building for $800,000 and needed an additional $200,000 for renovations and equipment for $200,000, you would be able to get 90% financing on the $1,000,000... 

Most conventional financing would require you to put 30 - 40% down on the $800,000 purchase price and the renovation/equipment financing would be up for grabs.  You would likely having to pay for those items in cash. On refinances, conventional commercial mortgage loans now rarely exceeds 60% loan to value.  Again 85% with SBA vs. 60% conventional; this is the decision maker for many businesses. 

25 year amortization with fixed periods ranging from 3, 5, 7, years is still available with the SBA.  Conventional commercial financing is now capped at 3 -5 year fixed rates with amortization schedules rarely exceeding 15 - 20 years.  These shorter amortization schedules increase monthly payments significantly and can be a serious drain on cash flow. 

No balloon clauses with the SBA.  SBA loans are fully-amortizing, meaning that they pay off by the end the amortization period.  Most conventional loans will have a structure such as a "3 year fixed period, with a 10 year term, on 20 year amortization schedule."  At the end of the 10 year term, the borrower faces a balloon.  With SBA financing there's never any pending balloon that could very well put the borrower in a bad position.    

Relatively low prepayment penalties with the SBA loans.  On a SBA 7a loan, the pre pay is 5% in year one, 3% in year two and 1% in year three, gone thereafter.  The borrower is allowed to pay down the principle by up to 25% of the balance without incurring the prepayment penalty.  Compared to the typical conventional prepay at 5% for 5 years or a 5% step down, the SBA pre pay is cheap and more flexible. 

None of the above really discussed the most important point of all - that SBA loan are the most viable and reliable sources of commercial mortgage loans in the business today.  The credit crisis will likely to continue for another year or more.  These loans are still closing while many conventional loans die while the loan is in underwriting, costing the borrower thousands of dollars and two to three months of wasted time and effort.  

commercial real estate loans

SBA 7A loans are one of the best finance solutions to business owners, in the market today.  There are two primary reasons for this - value and viability.

As commercial real estate values continue to decline the SBA 7A loan offers the highest financing available in the business, at 85%.  Conventional bank loans in contrasts are normally capped at 65% loan to value. 

Say you bought an office building 5 years ago for $1,000,000.  You put 30% down and started off with a $700,000 loan amount.  Now 5 years later your existing loan is ballooning/adjusting and you need to investigate what options are out there. 

However, you quickly learn that your property has declined in value to $800,000, and your existing balance has only been paid down to $650,000.  Your existing loan to value is 81%...  Your existing bank wants you to pay down the balance to bring it to 65% and no other conventional lenders will consider your request.  However, the SBA 7A loan will go to 85% loan to value, so this could be a business life saving deal. 

Because the SBA 7A loans are backed, i.e. guaranteed by the government, they are the most reliable loans, in terms of closing in the business today.  Many banks for example, are taking loans that fit their conventional guidelines and are pushing the borrowers to take an SBA loan because the bank wants the guarantee. 

A year ago, this was not the case.  The SBA guarantee comes with additional expense for the bank and much more paperwork/reporting requirements for them as well.  Many banks wanted nothing to do with the SBA. 

Borrowers need to keep in mind that the SBA does not lend money.  They guarantee the banks they do lend.  There is a wide level of flexibility between one bank to another, in terms of what is considered a fundable loan. 

Not all SBA lenders are the same!  Some are very conservative, others are still aggressive.  Being declined by one does not mean that you are ineligible for an SBA 7a Loan.   The key is knowing which sources are still funding loans.   

Due to the current credit crisis many borrower are considering SBA 7(a) loans for the first time and are surprised on how the third party fees add up.  And this is without the notorious SBA guarantee fees, as they have been temporally waived via President Obama's Stimulus Package.  The SBA guarantee fee is normally 2.75% of 75% of the loan amount...  This is temporally gone. 

Borrowers that compare a conventional commercial mortgage to the SBA 7(a) loan will find many additional fees that they may have never heard of.  For example, packaging fees, though not required are typically charged by all banks.  Sometimes this service is hired out to a third party, other times putting together the file is handled by the bank loan officer.  The typical packaging fee is $2,000 - $5,000, depending on the complexity and size of the loan request. 

Attorney review fee is also a little known fee that is charged on almost all SBA 7a loans.  This fee is on top of title fees.  The bank or lender is essentially hiring a third party attorney to review the closing docs, to protect their interests.  It normally ranges between $3,000 - $5,000. 

Other more typical fee such as title, appraisal and environmental will normally be on the high side.  Most banks that do SBA loans, will use the third party vendors with the best credentials and therefore demand the highest price.   For example a typical appraisal for an SBA loan will cost $3,500 - even if the loan request is small at say $300,000. 

Despite the high fees that are associated with SBA loans, they are still very popular - why?   A couple of reasons.  One, they provide the highest level of leverage in the industry.  As property value decline, this increase in financing (up to 85% on refinances) is often a business life saver.   Two, they are viable and are actively funding.  This is a huge point and should not be blown off.  It's estimated that 80% of conventional lenders have stopped funding loans.  The 20% that are lending are only considering the very best loan requests.    

Three, besides the fees, these can be really good loan programs with solid terms.  Like low rates (currently in the 5%'s), long amortization periods (normally 25 years) and flexible underwriting standards.   Because of these reasons, many business owners tolerate the fees and go forward with the loan. 

Jeff Rauth is President of Commercial Finance Advisors, Inc.  They close commercial mortgages throughout the US from $400,000 - $10,000,000.  248 885-8797.  Commercial Real Estate loans 

By far the most positive aspect of commercial real estate financing is now SBA loans.  Via the Obama Stimulus Package, SBA loan are still funding and the banks that are still in the market, are pushing all of their customers to go this route.    

For banks, the Stimulus Package increased the guaranteed portion of the SBA 7a loan from 75% to 90%.  Though many bankers will tell you this doesn't mean that much, because the government can get out of following through on the guarantee, having some type of backing is a lot better than none at all.

For borrowers the main benefit is having a closed loan.  A lot of borrowers don't realize the significance of this point.  Others include the widely published reduced fees (for example on the SBA 7a program, the normal fee of 2.75% has been temporally eliminated ).  Other major benefits include 90% financing and 25 year amortization schedules.

Conventional commercial financing continues to tighten, whether for owner occupied or investment properties (non multifamily).  What we are seeing actually close, on the conventional side is loans below 60% loan to value, with very strong borrowers.  Most banks now want to see strong secondary sources of income and high levels of post close reserves.  Though there's no set number/ratio a lot of banks want to see 30% in liquidity, compared to the proposed loan amount...  Some are establishing it as 12 months of mortgage payments in reserves or more. 

Another issue on conventional financing that keeps appearing, for borrowers with investment properties, is lease term.  Banks now want to see a minimum of 5 years left on leases.  Just a few months ago, there was still flexibility with this, now it seems to be gone.   

More info on conventional loans:  http://www.cfa-commercial.com/bank-loan.html

The areas of California, Nevada and Arizona boasted a whopping 68% increase in SBA 504 loan approvals from February to March.  Many leading experts are viewing this as a real sign that the markets are coming back, normalizing, and that the credit freeze may finally be thawing.  

As far as a dollar amount, the approval increased in these three states from roughly $48 million in February to $77 million in March.   The bulk of the increase occurred in California.  

Clearly the stimulus package is working.  And whether or not it is due to the reduction in fees, or just the increase in public awareness of the program and the increase in confidence that people have regarding the SBA 504 program is not clear.  The secondary market for SBA 504 loans has remained strong throughout the credit crisis, so the increase is probably more a result of the public's psychology, i.e. the belief that these loans are viable and it would not be a waste of time to go through the process. 

The SBA has had a pretty bad reputation for the efficiency of their program, which is mostly unwarranted.  Also, many potential borrowers are so beat up mentally that they just don't want to "bother", as they assume they will not qualify and or the program will not materialize and it will be a major waste of time to attempt to purchase a commercial property.  Also, many borrowers assume that if they have been turned down from an "SBA bank" that they don't qualify for the program.  Its critical to keep in mind that the SBA does not lend money.  Most of the time when a borrower is denied its from the banks own standards - not the SBA's. 

Some SBA lenders are much more aggressive than commercial mortgage lenders.  For example, there still are SBA lenders that will lend to borrowers that have credit scores in the 500's, low levels of cash flow, etc.  Not all SBA lenders are created the same!

Small business owners unaware of the details of the SBA-504 are often very surprised by the strength of it.  For example 90% financing is common.  Compare that to the typical 65- 70% financing on conventional commercial loans.   Also, most local/regional banks are now offering a max 3 year fixed rate, while the SBA 504 program offers fixed rates from 5 - 20 years.  Rates are very competitive right now with the CDC piece at 5.2%...  Fixed for 20 years.

It is a very worthy program and borrowers that are considering purchasing a new building or equipment should look into the SBA 504 program intensely.