The SBA 504 refinance program finally received a much needed boost this month when SBA decided to let business owners tap the equity in their buildings to pay for business expenses.

They effectively created a “Cash Out Refinance” for business expenses/expansion because a refinance can now include expenses incurred by a business in the past AND expenses “to be incurred” in the next 18 months.

This update to the guidelines was part of the original legislation but had not been worked into the program until now.  The update also includes more attractive guidelines for refinancing properties with a lot of equity.

Low Loan to Value Loans Can Now Be Refinanced

Prior to this recent change, it was difficult to refinance a property where the business owner had a lot of equity because the original guidelines said that the first mortgage had to be 50% of the appraised value and you could only refinance what was owed on the property, so in this case there was little to no value in structuring a refinance as a 504.

Now however, the new guidelines state that the existing debt can be split between a new first mortgage and the SBA 504 second mortgage which puts the new first mortgage lender at a much lower loan to value (25% to 50%) and removes a lot of the risk for the lender.

What does it mean?

It means that business owners with verifiable equity in a building can now put that equity to good use in their businesses.

What can be financed?

Business expenses like rent, utilities, salaries, inventory, (paying off/consolidating) an existing Line of Credit.

How can this help?

A business owner can “recoup” money spent in the past AND/OR they can now finance some of their future growth with excellent long term financing of 20 to 25 years.

For more info:  SBA 504 Refinance Guidelines

Mixed use properties include both commercial and residential space and both the SBA 504 and the SBA 7a program allow loans for businesses that occupy at least 51% of the available commercial space of a building.  (In some cases basements can be counted in the total square footage).

Eligible properties would typically be a building or office condo with a retail business on the first floor and an apartment or residential units upstairs.

And if the business is a type that requires an on-site manager who lives on the property, the residential space can be counted towards the business’s 51% occupancy, but it cannot exceed 49% of the total property .

More info: SBA 7a and SBA 504 Loans

Breaking News: Fall 1919, Somewhere Over France:

World War I Flying Ace “Snoopy” (flying WITHOUT a Wingman) is shot down by the Red Baron….

As this old headline reports, Snoopy was shot down and while he was able to land his doghouse…errr,  Sopwith Camel, behind enemy lines and work his way back to safety, you can’t help but wonder if the story would have turned out differently if he had a Wingman.

Where was Woodstock and what was Snoopy’s mistake?

Well, I can’t answer for Woodstock, but Snoopy underestimated the task at hand.

With a good Wingman on his team he may have spotted the Red Baron and avoided disaster, but as this “historical footage” reveals, it was not meant to be:

Snoopy vs. the Red Baron.

In reviewing the footage, you notice how Snoopy cavalierly takes off into the blue sky, confident he has what it takes to defeat his nemesis. You also notice that the skies soon turn dark and ominous with flack.  You see that he is alone up there and obviously ill prepared.  He gets a rush of adrenalin and starts firing away, but then realizes he is in trouble.  Soon his head is on a swivel and he doesn’t know up from down and eventually he crashes, his doghouse bullet-ridden and his ego wounded.

Pretty dramatic stuff, huh?

Luckily for Snoopy the landing wasn’t too harsh, so he lived to fight another day, but he lost valuable time and he had to leave his doghouse in France

What the heck does this have to do with SBA Lending?

Well, not much, but there is a good lesson here…It is important to understand the task at hand and to have an accurate picture of the current environment and what you are about to attempt.

Put it this way, if your business hasn’t skipped a beat over the last few years and you have an “easy” loan, then you should be able to avoid the kind of mini-disaster that Snoopy lived through.

However, if, like many business owners, the last few years have left you feeling like you’ve just been in a dogfight with the Red Baron…or if your banker has donned his Red Baron garb, shot you down and kicked you to the curb…you might just need a Wingman.

Commercial Loan Reality

The reality is that many banks are not lending at the moment and many others (who are lending) are “cherry picking” the easy deals.

Finding a suitable lender and applying for an SBA loan (or any commercial loan) is not as dangerous as being in a dogfight,  but you could waste a lot of time and you may feel the need to get up close and personal with the air sickness bag.

If you enlist our help, I can’t promise a bump-free ride or guarantee an approval, but I can tell you that there are lenders out there who will take a good hard look at your file and listen to your story.

We also now have access to an “A Minus” 504 Loan Program for those who had a few “bullet-ridden” years, but have since repaired the damage and are back to profitability.

As your SBA Wingman, we may just be able to guide you past the flack to an approval.

p.s. Post fueled by Dunkin Donuts Coffee.

By the way, SBA 7a and 504 Loans, are an excellent way to finance a Dunkin Donuts franchise

Earlier Posts:

SBA Wingman Services - Part 1

Part 1

Most people understand the current vernacular for a “Wingman” related to social situations and a buddy “taking one for the team.”

Well, we are not talking about that kind of wingman here.

What we are talking about is more the Top Gun kind of wingman as defined by Wikipedia:

Need A Wingman?

A wingman is a pilot who supports another in a potentially dangerous flying environment…

According to the U.S. Air Force,

There is always a lead aircraft and another which flies off the wing of and behind the lead. This second pilot is called the “Wingman” because he primarily protects the lead by “watching his back.”

The idea behind the wingman is to add the element of mutual support to aerial combat. A wingman makes the flight both offensively and defensively more capable by increasing fire power, situational awareness, etc.

You can guess where I am going with this…

Use A Wingman To Avoid Getting Shot Down

Cheezy analogy?  Maybe, but this is my blog and I can do what I want to

Anyway, an SBA Wingman’s job is help you navigate the process (avoid the “Flack”) and help you get past the obstacles in your way.

SBA Lending can be confusing, so whether you are having trouble figuring out if you need a 7a or 504 loan or more importantly finding the right lender, you should consider enlisting the services of a Wingman.

Do I Have All The Answers?

No.  I am not Yoda. If I was this post would be called “SBA Yoda”

What I can tell you is that if I can’t answer a question, I likely have someone at my fingertips who can.

Can I promise You That You Won’t Get Shot Down?

Nope.

But we likely have resources you are unaware of like a new “A-” 504 Program for companies who have turned the corner back to profitability, but are not yet “bank eligible.”

Real Value

Perhaps the best value we can provide is saving you time and hassle.

If you just don’t know where to start and you are not into wasting a lot of time speaking with various lenders to see if you fit into their credit box then that’s where I know we can help.

And, It Might Not Cost You A Thing…

We rarely charge fees because the lenders pay us.  (We’ve yet to charge a fee on a 7a loan and only rarely do we have to on a 504).

Even if we do charge a fee to be compensated for finding you the right loan, what’s more important?  Paying a nominal fee to find the right loan (or any loan) or spending weeks or months talking to the wrong lenders and getting shot down?

Continued…

Part 2 in the Series:  Snoopy’s Big Mistake…

p.s. if you need a Wingman of the “Hitch” variety for social situations, you might try this guy: The Professional Wingman.

It is probably not an exaggeration to say that most businesses had a rough couple of years in 2008 and 2009. In fact, many are still reeling.

It is also not an exaggeration to say many business owners are having a tough time refinancing their commercial property and have been extremely frustrated when speaking to their (formally) friendly neighborhood banker, because the bank (if they are lending at all) is generally only looking to fund “easy” loans.

When I say “easy” I basically mean 2 things:

1. a conventional (non-govt guaranteed) bank loan for a strong business at a low loan to value.
2. an SBA or USDA (govt guaranteed) loan for a business that did not have a hiccup over the past few years.

The reality:  Many, many businesses DO NOT fit into either category….but there is a possible solution…

The “A-” 504 Refinance Program

The “A-” 504 Refinance is a program offered to businesses who:

1. need to refinance their commercial real estate or equipment loans
2. have been in business for numerous years
3. have historically done well but “took it on the chin” during the Recession.

The “regular” SBA 504 refinance program is primarily for the refinance of commercial property and “long life” equipment…and (for now) it is only open to those businesses who have a balloon coming due.* it is now open to all SBA-eligible businesses and even allows cash out to finance business expenses.

Good Candidates for “A-” 504 Loan

A good candidate for this loan would be a business that might have showed a loss from 2008 to 2010, but is now profitable in 2011 and is trending in the right direction.

A good example of an industry with many businesses who fit this description would be the hotel industry as 2008 and 2009 were fairly brutal for many hoteliers, but many hotels have now rebounded and may fit this program.

Click here for more info on SBA Hotel Loans.

Caveats & Qualifying

The SBA 504 refinance program was recently tweaked (October 2011) and is now easier to qualify for since the SBA is now allowing lenders to refinance loans where business owners have a lot of equity and you can (technically) get cash out for business expenses.  See this post for more info: SBA Cash Out Refinance.  The even better news is that the loans are available up to 90% loan to value with roughly half of the financing on a “below market” 20 year fixed rate - currently approx 5.0% (December 2011).

A typical 504 refinance of the regular/easy variety might be structured with a 5 year fixed rate first mortgage and a 25 year amortization at approx 5% to 6%.

The A- program carries a higher interest rate for the first mortgage rate, but the second is the same rate as is available for a regular loan.  The rates on the first could be as good as 6.5% on a 5 year fixed (higher for the more marginal transactions) or they could also be pegged to Prime - typically in the Prime + 2% to 3% range.  (Prime is currently 3.25% so this is actually a pretty good deal).

Is it perfect?  No.

Is it a solution? Absolutely.

Once you’ve put together a few good years you should be able to refinance out of the first mortgage (if it makes sense to do so) and “re-subordinate” the low fixed-rate second.

Other Caveats:

1. It is tough to do smaller loans (under $500K) with the A- program.
2. The 504 program technically has no maximum loan amount, but anything north of $12 million could be very difficult.
3. You must meet the SBA 504 Refinance Guidelines - for a full rundown re: eligibility, click here:  SBA 504 Refinance

Assisted Living Facility Refinance and Senior Care

In addition to hotels, Assisted Living Facilities are a target market for this program and the program can also be used for acquisitions.  (Construction is not currently an option for the A- program, but it is possible for “easy” deals).

If your business is on the rebound and you need cash, you might also look into the SBA 7a program which allows refinancing of real estate and equipment as well as business debt consolidation and working capital.  The 7a is available for loans up to $5 million.  Click here for more info:  SBA 7a.

The SBA has just announced they are going to be expanding the pool of potential businesses eligible to refinance under the temporary SBA 504 refinance provision.

It was announced a few weeks ago that only those loans that were ballooning by 12/31/2012 would be eligible to refinance using the 504 program, but they have just released an update stating they will begin accepting applications on April 6th for all eligible refinance loans. (You no longer need to have a balloon coming due to be eligible).

Click here for more complete info on eligibility: SBA 504 Refinance.

The SBA and the Obama administration have proposed new higher loan limits for both SBA 7a and SBA 504 loans.  Please see this related post for more up to date information: www.sba504blog.com/sba-504-7a-loan-limits/

The SBA will be holding a press conference today to discuss the details of the new SBA 504 Refinance program.

Refinancing has never been available with the 504 program before and this could be a big help to some business owners.

There are some caveats with the new rule including one that says the refinance must include an “expansion,” however, the SBA has decided (in their own words) to “broadly define” what constitutes an expansion.  It is unclear how banks and lenders will interpret the new rule, but any improvement on the program is welcome.

The new guideline is also going to allow a limited amount of debt refinancing, but again we will need to see how it is going to read to see what is possible.

The 504 loan program has historically been overlooked, but it has been gaining in popularity because it is commercial financing that is actually available.  It is an extremely attractive loan with many uses and it is available for most healthy businesses for financing in excess of $10 million.

Business owners who occupy 51% or more of their commercial property are now eligible to refinance their commercial loans that are coming due with 90% financing through the SBA.

This is a temporary program available for approx 1.5 years (through Sept 2012) primarily designed to help profitable businesses who may no longer have enough equity to get conventional financing.

The first phase of the program will only be available to business owners whose loan is coming due prior to December 31, 2012, but the program is expected to be expanded in the coming months.

SBA Refinance Benefits:

• Available up to 90% loan to value
• No balloons or calls
• Long term amortizations of 20 to 25 years
• Low risk to lender because of Govt Guarantee
• Below market fixed rates*

SBA Program, But Not Just for Small Businesses

Because of recent legislation, the SBA commercial mortgage refinance programs are open to mid-sized businesses and can now accommodate larger loans for larger businesses.

Loans can now be in excess of $12 million and businesses are now eligible as long as they have a tangible net worth of less than $15 million and after tax income of less than $5 million.

Not For Every Business

The SBA 504 refinance program has some caveats to it, but if you can meet them (and many will be able to) then you should consider it.

Cash Out for Business Debt Consolidation

The SBA also intends to open the program up to businesses who have balloons coming due after 12/31/2012 or to those who stand to benefit substantially from a refinance…AND they will likely allow some cash out to pay business debt, but those adjustments to the program likely won’t happen for a few months.

As an alternative, the SBA 7a program allows loans of up to $5 million and is available now for business debt consolidation as long as you can prove the debts are business-related.

* The SBA 504 program consists of a first and second mortgage and the second mortgage is a below market 20 year fixed rate.

Total departure today from the world of SBA lending…sometimes you can find pearls of wisdom in the most unlikely of places.

If you missed the movie Rocky Balboa a few years ago because you heard about it, rolled your eyes and said “Oh no, not another Rocky movie” then you missed a good movie with a scene that contains some great wisdom.  (Seriously…stay with me here)

Now, I know Sly Stallone’s name is not the first offered in a debate re: best movie actors or directors, but you cannot deny the man’s genius in the early Rocky movies.

Afterall, he wrote the scripts and the first one garnered 3 Academy Awards including Best Picture and he single-handedly increased the popularity of plain gray sweat pants and sweatshirts decades before Bill Belichick-inspired hoodies were in vogue

Anyway, if you’re a small business owner and you’ve survived The Great Recession, then you likely know what Rocky means when he says “the world is not all sunshine and rainbows.”

And as an aside, if you have kids old enough to feel the effects of peer pressure and the relentless stream of inappropriate messages thrust upon them every day then this is something you might want to show them someday…

http://www.youtube.com/watch?v=Tp7psE585Ek&feature=fvsr

If the link stops working…just google “Rocky Balboa+that’s how winning is done” and I am sure you will find it.

Stepping down from my soapbox now, but if you want some great free advice about winning and keeping customers, follow the link below to a post by Sonia Simone.  I’ve linked to it before, but it merits re-reading at least once a year:

50 Things Your Customers Wish You Knew

SBA Loans (primarily 7a and 504 loans) funded after the signing of the “Small Business Jobs Act” recently surpassed the $10 billion mark.

That’s Billion with a “B.”

According to the SBA, 19,103 SBA 7a loans totaling $8,681,598,112 were funded between Oct 1st and Dec 28th with approximately $283 million still pending.

And 2,323 SBA 504 loans totaling $1,331,668,000 were funded with roughly $7.5 million  still pending.

That’s A LOT of small business lending.

Keep in mind that 504 fundings are just for the 2nd mortgage piece guaranteed by the SBA which typically equates to only 30 to 40% of the financing and that means the total 504 volume was more than double the reported number…AND the 504 numbers were more than likely new construction or expansion money and did not include much refinance volume because current 504 refinance guidelines do not allow for a refinance without an expansion…AND the new SBA 504 refinance rules will be out soon…which should lead to a surge in 504 refinance volume given the changes to the program which allow larger businesses to qualify, larger loans to be done and more property types (like self storage), etc.

Additionally, all of this activity has occurred without the use of the Small Business Lending Fund yet to be rolled out by the Treasury which will allow more lenders to make SBA guaranteed loans.

Combine all of this with the fact that many more lenders have discovered the benefits of SBA lending and we should expect that 2011 will be a very good year for Small and Mid-Sized Businesses in need of financing.

Update: As of January 4th, the SBA is no longer accepting Jobs Act loans in the loan queue and they have updated their status to show likelihood of funding as “Low.”

The SBA has re-activated the SBA Loan Queue and they are currently showing the likelihood of funding for the fee waivers and 90% guarantee as “moderate,” but it is inching towards “low.”

Once it hits “low” SBA will not accept any more Jobs Act-related loans and only those currently in the queue will have a chance at funding as currently approved loans are cancelled.