It’s been frustrating watching large banks get bailout funds without paying it forward by making small business loans. Banks rebuilt their own balance sheets and many made acquisitions rather than making what they deemed to be risky loans into a deteriorating market.
This week the Obama administration has indicated that they intend to rely heavily on the existing infrastructure of the Small Business Administration to get funds moving once again through the banking system and into the hands of small business owners.
On Monday (3/09/09) White House officials indicated that that the administration will launch a plan next week that will provide financing, liquidity and guarantees to open up small business lending, which is correctly seen as a key element of economic recovery.
The Obama budget would authorize the SBA to support $28 billion in lending guarantees for 2009. Additionally, $730 million from the stimulus plan is being used to reduce the fees associated with securing a Small Business Administration Loans and to guarantee a greater proportion of some SBA loans.
This is GREAT news for business owners and is perhaps the best possible way to get the economy moving again. SBA Loan Programs such as the SBA 504 or SBA 7a programs have functioned for years as efficient ways to get funds to qualified businesses in need. No business or individual can (currently) be the recipient of more than $2 million in SBA backed loan proceeds, so the funds will be widely disbursed rather than funneled to well-connected large businesses.
The small-business lending plan is part of a concerted effort by the Obama administration to ensure that the new government programs aid Main Street as well as Wall Street, a Treasury official said.
The way SBA loan programs work, a bank issues a conventional loan for the first 50% of a property’s value and the federal government guarantees any approved amounts above the 50%. Borrowers are always required to have a 10% equity injection at a minimum. By lowering the risk to lending institutions, these loan programs improve financial visibility and will get banks lending and business borrowing once again.
SBA lending is an excellent way to spur the economy into an upward economic trajectory once again. Small business is the undisputed engine of job growth and these programs get them the funds they need to operate and expand their business.
SBA Loans are fully underwritten, so only qualified borrowers and transactions make it through underwriting, but the loans offer the highest loan-to-values and the lowest rates available on the market for borrowers.
Is Now a Good Time to Buy?
The current unstable commercial real estate market has brought commercial property prices back into the good to excellent range. There is definitely a buyers market in commercial property. Although no one knows where the “floor” will be for commercial real estate prices, this is a great opportunity to benefit from the stimulus package and grab and make that purchase.
If you currently lease commercial property to run a professional practice,retail store, funeral home, etc, you plan on being in business for at least the next 5 to 10 years, right?
The total cost of ownership is likely to be lower if you buy your property than it will be to rent the property over the long term.
Ownership has many benefits. Any and all tenant improvements are yours to keep, you can never lose your lease or be forced to vacate the property,you have more options when the time comes to sell your business if you own the property, you can shelter income and enjoy tax benefits of ownership.
Best of all, you can use the recently improved SBA Loan Programs purchase the property with as little as 10% cash into the transaction but enjoy 100% of any increase in the value of the property over the years. Owning your place of business is a great idea and now is a fine time to buy.
Professionals and business owners should use this window of opportunity to purchase property before the fiscal stimulus really takes root and creates inflationary pressures on commercial real estate values as well as rental values.