Financing is still available for hotel projects—for those who know where to look for it. The U.S. government, through the Small Business Administration and the Department of Agriculture, is an option for hoteliers who are in the market for a loan, and can offer some notable opportunities for hoteliers.
A recent webinar, sponsored by Liberty SBF, discussed the value propositions of SBA programs and what sets them apart from other types of financing. Moderated by Elaine Simon, senior managing editor of Hotel Management, the panel was comprised of Alex Cohen, CEO and co-founder of Liberty SBF; and Greg Porter, SVP of capital markets, HREC Investment Advisors.
Banks, CMBS and Debt Financing
The state of the hotel finance market is improving, Porter said, noting that the hotel finance market in 2020 was “pretty much shuttered.” Borrowers, he said, were negotiating forbearances, and when they needed to find a new lender, they were paying a 9 percent rate—“if they could find that. So we’re definitely in a better [position] today. Many lenders that were active in [2019] have returned to the market.”
But it isn’t all smooth sailing. “Most bank lenders are looking to reduce their hotel exposure, not add to it,” Porter said. Some bank lenders will finance hotels—“conservatively”—for existing clients, he noted, and “a small handful” of bank lenders are writing conventional loans for new borrowers. But these are few and far between: “If you have a loan request in your market, you’re going to local or regional banks,” Porter said. “If you go to 20 lenders, you might find one or two that are offering conventional financing.” Borrowers for full-recourse loans could expect rates in the 4 percent range with 50 percent to 65 percent leverage and 25-year amortization.
Porter said commercial mortgage-backed securities lenders are “definitely back” for hotels that are “well flagged, well positioned and have strong trailing-12 cash flows. Rates for CMBS right now or in the “high fours to low fives,” he added. CMBS loans can be nonrecourse, and owners of newer hotels can secure a 30-year amortization.
Debt funds, meanwhile, are available in three- to five-year terms with nonrecourse bridge financing. “That market is definitely improved,” Porter said. Over the last six months, lenders have been seeking “value-add deals,” acquisitions that could be profitable following a turnaround. Rates for these funds are typically in the 5 to 6 percent range. “Most of the debt funds have a minimum $15 million loan size, so it’s for the larger deals,” Porter added, but acknowledged that some deals go for less.
SBA Loans
Loans from the Small Business Administration may be attractive for recourse borrowers, Cohen said. Specifically, the SBA 504 program provides much higher leverage at what Cohen called “a very attractive cost from a rate standpoint” compared to conventional loans, CMBS and debt funds.
“Most of our borrowers are trading … recourse for super-high leverage [and] low-cost financing as well as a loan that allows you to execute a business plan like a [property improvement plan] or some [capital expenditures] upon acquisition,” Cohen said. Notably, an SBA loan could be used for ground-up construction, an acquisition with CapEx or refinances, a distinction from the traditional model of bridge debt for acquisitions and perm debt for other purposes.
The SBA, Cohen added, is “fairly generous” in terms of what they consider to be eligible costs, including land purchase, hard costs and some of the borrower’s closing costs. “We’re advancing on a total pie that is inclusive of all of the total costs that are going into the project, and the borrower is really only having to inject 15 percent equity against those total costs,” he said. “I think [this] makes the SBA 504 program, in particular, a very attractive program for hoteliers.”
Just as travel was again on the upswing, a new variant of COVID-19, along with the global rise of cases has created yet another revenue setback for hotel owners and a slowdown in business meetings, conventions, and vacations. Thankfully, there is a new financing opportunity that can help hotel owners save money, access cash for improvements, and stay afloat during these uncertain times for the industry.
A recent rule change from the Small Business Administration (SBA) allows hotel borrowers to refinance their floating-rate SBA 7a loan to a fixed-rate SBA 504 loan. This opportunity is phenomenal for nearly any small business, but it is especially beneficial for most select and limited-service hotel owners.
Why refinancing is a no-brainer
If you have a 7a loan, the SBA’s flagship offering, you’re in good company. The SBA created more than 40,000 7a loans in 2020 worth a combined $22.55 billion. These are the most common government-backed loans sought by hotel owners because they can be used for ground-up construction projects and cover all business expenses. Equity isn’t built fast in these loans, however, which makes them difficult to exit.
The SBA’s new rule allows borrowers to refinance into the lower-cost 504 loan with more existing debt than was previously allowed. SBA 504 loans have a fixed rate, lower fees than the 7a loans, and offer up to 90% leverage. Even better—and this is where struggling hoteliers can really use a boost—504 loans allow you to cash out up to 20% of the property value to use as working capital. The new rule no longer requires borrowers be current on all payments for 12 months before filing an SBA application.
Any hotelier that was hoping to execute property improvement plans (PIPs), business plans, or renovations now has a way to fund those plans while reducing their monthly payments. Previously, borrowers could only refinance half of their project’s debt, but this interim rule allows them to refinance the full 100%.
Rates about to rise even more
Interest rates have already ticked up from historic lows, and recent activity from the Federal Reserve suggests now is the time to pull the trigger on this opportunity.
Getting ahead of those interest rate increases will be important, because 7a loans usually have variable interest rates between 5-6% while a 504 loan has a lower, fixed rate. The SBA debenture rate for January is 3.21% fixed for 25 years. The sooner you refinance, the better savings you’ll see against the forecasted higher rates.
Choosing the right lender
Not all lenders are created equal, and you’ll want to engage with a company that can offer the proper guidance to meet your business needs. A non-bank lender can usher you through the process and help you understand which loan works best for your hotel. If you’re already working with a bank that knows what you’re trying to accomplish, it should also be able to help you find the best loan program.
Keep in mind that you’ll want to find a lender that has experience with 504 loans and has an existing relationship with both the SBA and the certified development companies (CDCs) in your state. Trying to work outside of that network can bog down the speed of executing transactions.
If the looming rate hike didn’t convince you that now is the time to execute, consider this point as well: The interim SBA rule that allows for this refinance probably won’t go on indefinitely. As the hospitality sector continues to try to rebound from the pandemic, the opportunity to refinance is here NOW and is too good to pass up.
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.
One of the ongoing challenges faced by manufacturers is knowing when and how to invest in business real estate and related resources that can help keep the business competitive. One option is an SBA 504 loan. These loans are available to for-profit U.S. companies that have a net worth of less than $15 million and an average net income of less than $5 million.
These loans, which are regulated by the Small Business Administration are available from organizations like Liberty SBF. The company services 504 loans ranging from $1M to $15M, and has funded over $2 billion in loans to small and medium businesses with programs that offer significant cost and flexibility benefits.
To help get some clarity and advice on optimizing 504 loans, Manufacturing.net spoke to Liberty SBF’s Alexander Cohen. Watch the 5-minute video.
Senior living providers and investors are familiar with the financing options from Fannie Mae, Freddie Mac, and HUD. Less well known are the government-subsidized loan programs for healthcare facilities through the U.S. Small Business Administration (SBA). Liberty SBF is a specialty finance company that offers SBA, conventional and bridge loans.
NIC Chief Economist Beth Mace recently discussed the SBA program and other financing options with Alex Cohen, CEO at Liberty SBF. Here is a recap of their conversation.
Mace: Can you tell our readership about Liberty SBF?
Cohen: We launched the firm in 2011 and have been lending through several business cycles. We work with a lot of businesses that are buying or refinancing real estate for their companies, or what we call owner-user commercial real estate finance. We have closed more than $2 billion in commercial real estate loans. One of the eligible asset classes is healthcare, including skilled nursing, assisted living and memory care. When we first launched the firm, we were co-lending with the SBA and financed a decent number of assisted living and skilled nursing facilities and that’s how we were introduced to the asset class. We now have a full range of loan products for healthcare facilities and medical practice owners.
Mace: What distinguishes Liberty SBF from other lenders? You are a non-bank lender. What does that mean?
Cohen: We are a specialty finance company, a non-depository lender. We do not finance our operations through deposits. We have private equity and institutional investors who invest in our assets, but we are not a bank. That gives us some flexibility in terms of the deals we can underwrite. It allows us to operate in an area of the credit space where banks might not feel comfortable during choppy times. Certainly, the last 18 months have been choppy considering COVID-19, but we have continued to lend in the healthcare space. Compared to other specialty finance companies, we tend to provide loans for assets in the $2 million-$20 million range. We are focused on lower middle market or small balance commercial loans.
Mace: Is your cost of borrowing higher or lower for a borrower than that of a conventional bank?
Cohen: We offer some very attractive rate products. The way we finance these products is very efficient. On the permanent financing side, we can offer very attractive high-leverage, low-cost products. Some of our larger permanent financing deals are being priced in the high 2%-3% with up to 80%-85% leverage. That’s very attractive financing for these healthcare facilities which are an eligible asset class for government subsidized or quasi-subsidized programs. We tend to work with the SBA. Some of its offerings beat comparable offerings from HUD, Fannie Mae, and Freddie Mac. The SBA programs aren’t as well known in the sector. We are trying to educate the healthcare facility owner community about other financing options available for ground-up construction, transitional type business plans for existing assets, or permanent financing for stabilized properties.
Mace: What types of loans do you provide?
Cohen: We offer SBA, conventional, and bridge loans for healthcare facilities. One of the most attractive loan products we offer is the SBA 504 loan. Facility owners can get up to 85% loan-to-cost financing through the SBA with Liberty SBF as the co-lender. The loan can be used for ground-up construction, for example, and the borrower can secure up to the total cost of financing. It is a recourse loan. The way the program works, we partner with a Certified Development Company (CDC). A CDC is a nonprofit organization that promotes economic development within its community through 504 loans. CDCs are certified and regulated by the SBA, and work with the SBA and participating lenders, such as Liberty SBF, to provide financing to small businesses. The CDCs underwrite the loans with us and submit it to the SBA. When the loan is authorized, we fund the entire project. The SBA takes us out either at completion of construction, or shortly after the loan closes.
Mace: Is the process similar to the way Fannie Mae and Freddie Mac partner with Delegated Underwriting and Servicing (DUS) lenders?
Cohen: Each government program works a little differently. There are many CDCs, and we work with the largest ones. CDCs also work with other state and local subsidy programs. The CDCs are typically well versed on healthcare facilities. We manage the process, not the borrower, so it’s pretty seamless. And because we’re specialists, we can get these deals done in 45-60 days, whereas a large bank lender may take 90-120 days to close.
Mace: When you say healthcare facilities, can you define the types of assets?
Cohen: The types of assets we finance are assisted living, skilled nursing, memory care, and rehab facilities. The assets typically have a higher acuity of care. We also finance medical office buildings, which are eligible under the SBA program. Active adult and independent living properties would be considered investment real estate from our perspective. We do offer bridge lending on multi-family properties, including some age-restricted senior housing.
Mace: Do you offer conventional and bridge financing?
Cohen: Yes, we offer conventional and bridge financing. Our leverage is not as high with those products. But our borrowers can obtain permanent financing through our conventional offerings.
Mace: Do you finance the operations/cash flow part of the senior housing business or just the real estate?
Cohen: We only finance the real estate.
Mace: Were you active lenders during the pandemic?
Cohen: We were very lucky. We were designated as a Paycheck Protection Program (PPP) lender. We made PPP loans to a lot of companies in our servicing portfolios as well as to new businesses. We financed close to $200 million in healthcare-related businesses and financed about $1 billion in total for all types of companies. We were able to help healthcare borrowers, including our own existing borrowers, to weather the storm. Our bridge loan business has been active, helping owners refinance their facilities at a lower leverage point. The PPP program was successful and popular with borrowers. Now, we are working through the PPP forgiveness process with our borrowers and new customers. They must demonstrate the funds were used for legitimate operating expenses. And at that point, the loan becomes a grant that is tax free income for the business. Facility owners, particularly smaller, closely held healthcare facility owners, should keep in mind that the SBA was chosen as the vehicle through which the government provided stimulus to the entire business community, not just small businesses. The SBA has provided loan and fee deferments, and some rules have been changed. For example, borrowers can refinance SBA and HUD debt into an SBA 504 loan, an option that was not available before. It can be an opportunity for borrowers to pull cash out and lower the interest rate. Also, the government continues to provide other subsidies to healthcare facility providers, through programs such as the Provider Relief Fund. We have a great originations team, and we can be helpful if anyone has questions on the programs.
Mace: How large is Liberty SBF’s book of business for senior housing?
Cohen: Our servicing portfolio is several billion dollars. Our goal, as we transition from PPP to core lending, is to deploy about $100 million-$150 million between now and the end of the year. We have a number of healthcare transactions in the pipeline. There is a lot of interest from borrowers who believe we are at or near the bottom of the rate cycle and want to take advantage of the low-cost financing.
Mace: Has your bridge lending program been especially active during the pandemic? Why is that?
Cohen: Yes, our bridge lending program has been active. Borrowers with loans at maturity on their existing conventional debt or with an underperforming asset are taking advantage of bridge financing to reposition the facility. Or perhaps a buyer making an acquisition needs a bridge loan to execute a business plan to improve the census or put CapEx into the building to stabilize the property to get permanent financing or sell the asset.
Mace: Do you offer non-recourse bridge loans?
Cohen: We do offer non-recourse bridge loans. They are typically larger in size than recourse loans. Non-recourse bridge loans range from about $5 million to $15 million, with about 65% loan-to-value.
Mace: Broadly, what do you look for in a borrower?
Cohen: Operating experience is key. What is their operating experience for these types of facilities and sizes? Do they understand the market? Are they in town? We look at the borrower’s net worth and liquidity relative to the loan amount we are making. We focus on the recourse guarantors—ultimately the owners of the business—and the non-recourse carve out guarantors.
Mace: Do you often turn anyone down?
Cohen: We look at deals all day long. We are focused on originating deals that fit our credit box. We offer a large swath of products to the industry and can cater to different borrower profiles. Certain situations are not financeable for us and those are deals we cannot move forward with.
Mace: Where do you get your lending ability from? Institutional groups? High net-worth individuals?
Cohen: Our limited partners are primarily family offices. We have a well-capitalized operating company. The decision makers at our company are principals and managers. We were successful with the PPP program, and we are deploying that capital back into the market through our core programs with our limited partners and other institutional investors. They are very aggressively seeking investment opportunities at this point. We feel good about our capital position and our ability to lend.
Mace: What else would you like to share with our readership?
Cohen: I’m looking forward to the NIC Fall Conference in Houston. If anyone would like to set up a meeting during the Conference, please contact us.
Late July brought significant change to the commercial lending space with a highly impactful announcement by the Small Business Administration (SBA).
For the first time, the SBA announced the opportunity to refinance 7a loans into 504 loans. Commercial real estate investors often utilize high-leverage, floating-rate SBA 7a loans to finance construction projects but find themselves without an easy exit strategy.
This rule change enables borrowers to refinance into an SBA 504, another high-leverage, government-guaranteed loan with a low fixed rate. Refinancing can potentially save thousands of dollars on interest, plus allows cash-out for working capital.
For Liberty SBF, the proposed changes were welcome news. With a client base made up of investors and businesses eager to refinance out of SBA 7a loans into low-cost, fixed-rate SBA 504 loans, this change has opened more doors for potential borrowers as well as generated a great deal of interest and direct referrals from brokers in the mortgage community.
“This is a really big deal. Any borrower in that high leverage (SBA 7a) loan should be thinking of refinancing, because theoretically there should be very little out-of-pocket expense. Most of the fees can be capitalized into the new loan,” Alex Cohen (pictured), chief executive officer of Liberty SBF, explained.
“Brokers and mortgage professionals who work as intermediaries should be thinking about their 7a clients who can now refinance into high-leverage, fixed-rate SBA 504 loans. We believe that this is a total of around $100 billion to $200 billion in outstanding volume,” Cohen continued.
Liberty SBF hit the ground running in anticipation of the SBA announcement. To capitalize on the significant change for high-leverage small business loans, Liberty SBF set up a team dedicated to pursuing this opportunity and have been growing this team over the month since the proposed change took effect.
How has the announcement panned out so far? “We have already been successful in signing up several deals. We are working with a lot of referral sources in the mortgage community that send us transactions. It has been a big deal for them,” Cohen stated.
Liberty SBF has also introduced additional bridge and construction options to participants in the mortgage industry with the launch of a bridge loan platform.
On the heels of such welcome news in the commercial lending space, Liberty SBF is now able to offer its client base a new bridge loan option that is generating buzz in the industry.
“This second loan appeals to institutional investors. Debt funds and institutional lenders typically do not lend below $10 million or $15 million per transaction. With our bridge option, we will go down to $5 million. We can now offer a low interest rate for deals between $5 million and $15 million that have in-place cash flow,” Cohen stated.
Cohen further explains that Liberty SBF can offer two options: a “heavy lift” bridge loan, which is geared toward construction for borrowers with less in-place cash flow, and a “light lift” bridge loan, which suits projects with more in-place cash flow and offers the most competitive non-recourse pricing available on the market.
Aside from the ability to go down to the $5 million mark, what other advantages does this bridge loan carry?
Cohen doesn’t hesitate to answer. “It is low-cost, high-leverage, and non-recourse.”
In simple terms, Cohen explains that Liberty keeps a competitive edge by offering lower rates, which range from 5-6%. Additionally, the loan-to-cost ratio can be as high as 80% and the borrower is not personally liable aside from fraud (the collateral for the loan is the property, not the borrower).
What is down the road for commercial lending?
With new construction not expected to slow down any time soon, the odds are in the commercial lending space’s favor.
“We feel that there are strong fundamentals for commercial real estate. There are a lot more people than housing and apartments in most markets across the country. Over the next two to three years, we will be watching rates very carefully. If there is an opportunity to refinance at a fixed rate, now is the time to do it because we are at the bottom of the rate cycle,” Cohen explained.
Cohen added: “We are bullish in the one-to-15-million-dollar space, which is the size we play in and eligibility for these loan products. Both are predicated on a resilient real estate market.”
Liberty SBF just closed a $3.67 million loan for the acquisition of an industrial warehouse in Fort Lauderdale, FL. The Sponsors were approved for an SBA 504 loan broken up into a $2.04 million first lien mortgage and a $1.6 million interim second lien mortgage.
The two-story, 20,035 SF structure was originally built in 1988 and will serve as a distribution center. The Sponsors operate a wholesale and distribution company for baby items, outdoor products, health and beauty, pet supplies, sports and fitness, office supplies, and medical supplies. The company experienced solid revenue growth throughout 2020 and 2021.
Interested in applying for a commercial real estate loan with Liberty SBF? Click below to learn more about our secure online application process.
Liberty SBF closed a $2.8 million SBA 504 loan for the acquisition of a gas station and convenience store in late January 2022. The borrowers received 85% LTC for the 6,674 square foot property, located in High Point, NC.
The two borrowers were under contract to purchase the gas station for $3.2 million and required financing to complete the investment. The partners already own and operate an existing convenience store brand with four locations across New Jersey and North Carolina. They also have a partnership with a major oil company that will provide the gas for the station.
Our underwriting team structured the deal and valuation with the borrowers’ four existing entities as corporate guarantors. This acquisition will expand the company to five total locations.
Interested in applying for a commercial real estate loan with Liberty SBF? Click below to learn more about our secure online application process.
Liberty SBF closed a $1.1 million SBA 504 loan at 90% LTV for a multi-tenant office building acquisition in Poway, CA. The borrower acquired the building for $1.2 million.
Located 30 minutes north of San Diego, this two-story, Class C office building will be owned and partially occupied by the Sponsor. The business owners, who operate a full-service boutique real estate firm, will occupy three of the six total units in the building and lease out the remaining three. The building was constructed in 1975 and is 4,400 SF.
Interested in applying for a commercial real estate loan with Liberty SBF? Click below to learn more about our secure online application process.
Many business owners have the idea that Small Business Administration loans are difficult to get, take a long time to close, and they’re not worth the effort. This misunderstanding comes mainly from borrowers who went through the process with lenders that do not make SBA 504 loans regularly who get tripped up by loan regulations and procedures they’re unfamiliar with. They don’t understand the loan process and infrequently work with the SBA, causing undo difficulties.
A preferred lender like Liberty SBF can guide borrowers through the process seamlessly and we know how to anticipate problems before they come up. We’ve heard all the reasons why small business owners shy away from going with an SBA 504 loan. Below we dispel the most common myths.
TOP 5 SBA 504 Myths
1. Too Long and Cumbersome
This is probably the most common misconception about SBA 504 loans. Much of it comes from the fact that the SBA requires a lot of documents from the business owner. Loan processors at Liberty SBF know exactly what is needed to underwrite the loan, usually the same exact documentation required by a conventional commercial property loan. As a preferred lender, we know exactly how to structure a loan package. We work with all parties to expedite the loan to closing quickly and efficiently.
2. Property Needs to be 100% Occupied by Owner
SBA 504 loans are more flexible in occupancy requirements than you might think. Most borrowers think they have to occupy the entirety of the property’s square footage to qualify. And while most small businesses will, there are cases where a portion of the property is rented out. In order to qualify for an SBA 504 loan, the business must occupy at least 51% of the property, leaving the rets to be leased out to another business giving the owner another source of revenue.
3. It’s Only for Mom & Pops or Startups
Actually, it’s the opposite. While many Mom & Pop type business can get an SBA 504 loan, most of these businesses are middle or larger sized companies with multiple employees. From Main Street to Middle America, small businesses across the country can get an SBA 504 loan. Liberty SBF frequently funds SBA 504 loans anywhere from $1 to $10 million in industries as varied as assisted living facilities and warehouses to self-storage facilities and schools.
4. It’s a Loan of Last Resort
Many people think that after a borrower has been turned down by for a bank loan they have to go to the government with hat in hands for a loan as a last resort. Again, for most small businesses this is the exact opposite of what should happen. Any business owner with good credit and at least three year’s operating history should apply for an SBA 504 loan first when purchasing a commercial property. The terms are much more favorable than any other small business loan you will find anywhere. Low, long term rates and up to 90% loan-to-value help small business owners save cash for operating expenses.
5. SBA Lends the Money
The Federal Government does not put up the money for an SBA 504 loan, so the taxpayers do not fund small businesses who want to purchase a property. An SBA 504 loan has three parts. If you’ve ever taken a home mortgage and a home equity loan, then you can easily understand how an SBA 504 loan works and how it can provide up to 90% LTV financing. A first lien loan of 50% LTV is provided by a bank or a direct non-bank lender like Liberty SBF. The second lien of up to 40% is provided by a secondary institution called a Certified Development Company (CDC). A CDC is a non-profit certified and regulated by the SBA that promotes economic development within their communities, which includes funding second lien SBA 504 loans. While the money is not provided by the SBA, the CDC portion of SBA 504 loans are guaranteed by the U.S. Government. CDCs work together with participating lenders Like Liberty SBF. Since the SBA 504 loan program launched in 1958 it has been self-funded and hasn’t cost the taxpayers any money in its mission to help U.S. small business owners grow their businesses.
Liberty Small Business Financial Authorized SBA 504 Lender
Liberty SBF is a mission-based lender that provides capital through the SBA programs at a low cost to borrowers. Since its inception ten years ago, Liberty SBF has participated in more than $2 billion in transactions involving SBA programs.
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.
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.
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.
The concept of owner-occupied commercial real estate – also known as owner-user commercial real estate – is key to understanding lending options to finance a new property for a business. The financial upsides of owning versus renting are many. An owner will build equity with every mortgage payment and asset appreciation increases value in the property over time.
But, just running a business out of a property does not automatically make it eligible for SBA 504 financing from Liberty SBF. In addition, the owner must occupy more than half—51% or more—of the building’s leasable space for the purposes of running their own business. A business that has the same ownership as a holding company that owns the property is also considered owner-occupied.
In this case, the borrower is eligible for a US government-backed SBA 504 loan that gives you access to better financing than any other option.
But what happens if you still need a loan but do not expect to occupy more than half of the available square footage of the commercial property
Liberty SBF’s Conventional loan is a great alternative. Our Conventional loans allow occupancy of the borrower’s business to be as little as 30% of the total square footage of the commercial property.
Asset types that qualify for owner-occupied financing include industrial buildings, flex, retail, office properties, and professional medical offices.
Special-use properties such as self-storage, assisted living facilities/skilled nursing facilities and other healthcare properties, day care, sports facilities, and event centers also qualify. A multifamily property is not eligible for owner-occupied financing, but mixed-use buildings and hotels do qualify. Learn more about hotel property loans.
In 2010, the SBA deemed some businesses with rental income – also called passive income – eligible for its programs. This gave self-storage operators the opportunity to take advantage of the SBA 504 loan’s many benefits. Read more about self-storage facility financing.
The SBA 504 loan provides small businesses that will be owner-occupiers access to the same type of long-term, fixed-rate financing enjoyed by larger firms. Interest rates are equivalent to favorable bond market rates. You qualify for the loan program when you have sufficient liquidity and net worth, and plan to occupy more than 51% of the facility you are purchasing for SBA 504 loans or 30% for Conventional financing.
As an owner-user, you are considered to be a lower risk for the lender, who is assured that you will be committed to the property both as landlord and as chief occupant.
Liberty SBF is a specialist in SBA 504 and Conventional loans. We believe that our owner-occupied loan programs have advantages that no other loan can equal, including:
Up to 90% LTV (loan-to-value ratio) financing,
Low fixed rates, and
Terms up to 25-years
Interest rates are low today, and now is the time to lock in your fixed-rate commercial real estate loan. When you work with an experienced lender like Liberty SBF, you can be confident that we will anticipate any problems and help you overcome any potential obstacles.
Liberty SBF provided $1,103,850 in total SBA 504 financing for the acquisition of an industrial property for a landscape supply company in Boring, OR. The property is comprised of three buildings totaling 11,168 SF and are situated on a 5-acre site. The property is 100% owner-occupied and will be used to store vehicles, equipment, and landscaping materials held-for-sale.
How can we help?
Liberty SBF offers personal service for SBA 504 and Conventional & Bridge loans for owner-user properties across the US. We’d love to help you.
Liberty SBF provided $1,558,800 in total SBA 504 for the acquisition of an industrial building located in Hollywood, FL for an e-commerce retailer. The guarantors consist of two companies that share space, inventory, and operating expenses. They offer brand name apparel, footwear, jewelry, home and kitchen gadgets, tactical gear, and sports and outdoor gear mostly sold on Amazon.com. The property consists of two buildings located 22 miles north of Miami.
How can we help?
Liberty SBF offers personal service for SBA 504, Conventional & Bridge loans for owner-user properties across the US. We’d love to help you.
Liberty SBF provided $3,747,000 in total SBA 504 financing to acquire a retail property located in Brooklyn, NY for a kosher supermarket. The Property is a 10,000 SF, single-story retail building specifically located in a densely populated residential neighborhood in south-central Brooklyn.
The store offers a complete range of grocery products including baked goods, fresh produce, beverages, frozen foods, dairy and eggs, meat and fish, paper and cleaning, health and beauty, and housewares. The grocery store has occupied this location for more than 24 years and will continue to occupy 100% of the property.
How can we help?
Liberty SBF offers personal service for SBA 504 and Conventional & Bridge loans for owner-user properties across the US. We’d love to help you.
