SBA Opportunities for Commercial Real Estate

Steve Harrington is a local banker our firm has worked with for years.  His articale below provides very valuable information about potential SBA loans for commercial real estate.  Finally, some positive banking news during this slow economic recovery.

By the way, if you are interested in contributing to our blog, email Mary for more information.  mmm@politoeppich.com  

Steve Harrington
Senior Vice President
California Community Bank
sharrington@calcommunitybank.com
(760) 542-4230
(760) 542-4289 fax
(760) 390-4771 cell

I came across an interesting accommodation the SBA is allowing due to the challenging times in which we have found ourselves.  Many business owners utilize the SBA 504 loan program to purchase commercial real estate.  This program’s key benefit is 90% financing of the real estate and the improvements.  The financed portion is split between a bank loan in 1st trust deed position for 50% of the property value or proposed project cost and an SBA loan in 2nd position for 40%.  

The impact of the economic challenges we have faced over the last couple of years is that the value of the real estate, in most cases, has fallen more than the 10% equity.  I have a customer that would like to refinance his 1st trust deed loan, but assumed that the SBA would be reluctant to subordinate to a new first trust deed.  This assumption was based upon his opinion that SBA would see that the current value of the real estate has exposed their 2nd and would not approve a subordination request for a new 1st trust deed.

 What I found through conversations with the local SBA representatives is that the SBA will require a copy of the new appraisal, but will not base their decision to approve a subordination request on the current loan to value ratio.  What is of concern is whether their loan is current and handled as agreed, and whether the new first improves the cash flow of the business.

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