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Program Benefits
SBA 504 vs. Conventional Financing
Borrowers
- Low down payment:
A low down payment of just 10% allows the borrower to preserve cash for working capital. For a traditional type of loan, most banks will lend only 60-70% of the appraised value of the project leaving the borrower to invest 30-40% plus the cost of renovations.
- Fixed rate on the SBA 504 portion: Borrowers will not have to worry about the prime lending rate going up. The amount of the mortgage payments will be the same for the next 20 years. This provides financial stability and predictability to the business owner.
- Long term:
Preferred SBA 504 loans are for 10 or 20 years. Because the Preferred is in second lien position, the bank or other lender has the 50% first lien loan and is willing to lend at a longer term. The longer term makes the monthly payments lower and enhances borrower’s cash flow as the business grows. The longer term also helps avoid balloon payments and a re-negotiation of the loan which could create higher payments.
- Low interest rate:
Including all the fees and closing costs included in the rate, the rate is very low for a subordinated mortgage loan, particularly for small business. The blended rate between the bank portion and the SBA 504 portion makes the project affordable and practical for the borrower.
Lenders
For the banker you get Community Reinvestment Act (CRA) credits and you lend at a lower loan-to-value ratio with a lower risk because the SBA 504 loan is in second position.
- Preferred’s staff prepares all SBA forms, packages, closes and services the SBA loan.
- The lending institution builds a stronger banking relationship by providing their customer the benefits of the SBA 504 loan, while maintaining a strong financial relationship.
- The bank's loan at 50% of project costs allows lenders with in-house lending limits.
Realtors
- The SBA 504 increases the number of prospective buyers for the property because it reduces the down payment requirements for the purchasing business and reduces the risk for the primary lender. This allows borrowers to consider properties they otherwise could not afford.
- Preferred’s experience in pre-qualifying borrowers will save you time so that it is concentrated with eligible and qualified buyers.
- Preferred’s loan officers work directly with the bank of your or your prospects' choice to assemble the financing. Closing on the property typically occurs within 4-6 weeks of application which will speed up receipt of the realtor’s commission.
Sellers
The SBA 504 program can accelerate the purchase of the property because the buyer is only required to put 10% down. This reduces the need of the purchaser to use other security or to raise additional cash. And in some cases eliminate the need for a seller carry a note for a portion of the “typical” down payment. Further, the borrower is also more amenable to paying a higher price because the cash flow impact of the loan. As a result, the program opens more of the market to a larger number of potential buyers.
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