Warehouse Financing Options from SBA Worth Exploring

Originally published on Metal Center News

The Small Business Administration has been a major source of interest over the past 18 months, administering the Payment Protection Program loans that served as a lifeblood for many enterprises to guide them through the pandemic. But the expiration of the PPP does not mean the SBA has run dry as a resource. 

The SBA has made some changes to a few of its loan programs that can be utilized by service center operators to take advantage of the red hot market for warehouse facilities in the commercial real estate sector. 

Dating back before the pandemic, real estate values for industrial spaces have been among the best gainers, says Alex Cohen, CEO of Liberty SBF, a small business lending company. Such a dynamic creates an interesting opportunity for service center operators, many of whom own the land they occupy. 

The current conditions lead to a number of questions, Cohen says. “‘How do I take advantage of assets I already own?’ ‘How can I grow if I need to?’ ‘What are the best options for a financing standpoint?’ ‘Should I be refinancing now?’ We’re having a lot of these conversations with those borrowers and intermediaries who are looking at those types of decisions looking to navigate the landscape today.”

Let’s get to the last question first. If refinancing is something an owner-operator is considering, Cohen says now is the time to pull the trigger. Two separate changes to the rules by the SBA have made refinancing particularly attractive. 

Regarding the 504 program, Cohen says property owners can use an SBA loan to refinance debt, even if they have only owned the property for a short period of time. “If you get a fresh appraisal, and have equity, you can get a quick, low-cost financing vehicle to pull cash out. You can really take advantage of values going up without overextending yourself or having to sell the property.”

A more niche route, but one that is an outstanding opportunity for companies who qualify, is the change that allows companies to refinance existing government debt, a situation that never existed before. For instance, the SBA’s 7A program has historically been used as a high-leverage option in real estate, but it comes with a floating rate loan. With the new rule in place, companies can refinance from one SBA loan to another, switching out the higher cost floating loan to a fixed rate loan. 

“We’re doing a lot of these refis right now. It’s really a no-brainer. You lower your monthly payment, you pull cash out, and all of your costs and fees get capitalized,” Cohen says. 

Refinancing, of course, isn’t the only option on the table. And the SBA has worked to provide some new avenues for warehouse operators. 

In addition to the refi element of the 504 program, the loan can be used to acquire real estate in the confusing market. Borrowers can finance up to 90 percent of the property with an SBA loan, compared with 65 to 70 percent LTV on a conventional loan. And it’s done in the confines of a low-cost, fixed-rate loan. 

“If you’re purchasing real estate, especially in an environment where prices have increased significantly, it’s a way to reduce your cash equity injection into the financing because it’s only 10 percent down. It’s a huge difference compared with conventional financing, and it’s also relatively cheap compared with conventional financing.” 

The solution also works for companies currently leasing properties, particularly in the face of increasing leasing rates. The availability of the 10 percent down aspect can help push the scales in the lease vs. buy equation.

How long this situation lasts is a question mark. With inflation percolating, the Fed will be looking seriously at interest rate hikes, which will put some negative pressure on asset prices. 

“While we’re keeping our eye on inflation and keeping our eye on rates, you have a supply-demand imbalance with much stronger demand than supply for warehouse industrial properties. There aren’t many ways to take advantage of the value in that property,” he says.


SBA 504 Borrowers: Get 6 Months of Payment Forgiveness Through Covid-19 Relief Act

The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act) provides $3.5 billion in additional Covid-19 relief, some of which is authorized for use through the SBA 504 loan program for both existing borrowers and on newly originated loans to help small business owners during the pandemic.

New SBA 504 Loan Relief

The SBA 504 Loan has been made even more attractive to new small business borrowers. For all loans approved from February 1 until September 30, 2021, the SBA will subsidize the first 6 months of principal, interest, and any associated fees starting with the first payment. Borrowers need not apply for this assistance.  The SBA provides this assistance automatically and is capped at $9,000 per loan per month.

Relief for 2020 SBA 504 Borrowers

The Small Business Administration was authorized by the Economic Aid Act to pay 6 months of principal, interest, and any associated fees that borrowers owe for all 504 loans approved up to September 27, 2020 even if not fully disbursed and existing loans that are in in regular servicing status.

SBA 504 Loan NOT Eligible for Relief

According to SBA guidance, unfortunately, loans approved during the period beginning on September 28, 2020 and ending on January 31, 2021 are not eligible to receive any payment relief.

Apply for an SBA 504 loan

SBA Fees Eliminated

Alejandro Buitrago, Vice President and Business Development Officer at Florida First Capital Finance Corporation has been parsing through the new legislation. According to Buitrago, for any SBA 504 Loans approved between December 27, 2020 and September 30, 2021; the following fees will be eliminated:

  • 5% of the 1st Mortgage (aka TPL Fee)
  • 5% of the Interim Loan (aka CDC Processing Fee in the debenture)

To illustrate, here is what fees would be eliminated on a standard $1,000,000 Project being financed at 90%

  • Fee Elimination 1st Mortgage: $2,500
  • Fee Elimination Interim Loan: $6,000
  • Total Fee Elimination: $8,500

Some debenture fees remain in the equivalent of 1.15% of the Interim Loan In the above scenario the SBA Debenture Fees would total: $4,600, reducing the SBA Fees from $13,100 to $4,600 on a $1,000,000 project, a 65% decrease in costs.

Apply for an SBA 504 loan.

Liberty SBF is Your Connection to SBA

Covid-19 is still adversely affecting thousands of small businesses across the country and the SBA’s lending programs are key tools in the Federal Government’s economic stimulus efforts. Liberty SBF, one of the largest SBA 504 lenders in the country, is helping small businesses connect with the SBA to take advantage of stimulus relief through Paycheck Protection Program and the SBA 504 loans.

Small business owners positioned to acquire a new property to expand their businesses right now need to finance their expansion through the SBA 504 loan program, which already offers the best terms for borrowers out of any commercial property loan: low, long-term rates starting at 3.99%, with up to 90% loan-to-value financing. Small business owners who already operate out of their own commercial property can tap into their equity at similarly favorable terms through an SBA 504 refinance. Both borrowers will get to take advantage of new SBA 504 loan relief in the Economic Aid Act.

As always, please refer to SBA Procedural Notice 5000-20079 for complete guidance on SBA 504 loan relief in 2021.

Contact Liberty SBF about SBA 504 loans.