There's Big Business in SBA Loans

By Merril Levesque, director of communications and outreach, National Association of Development Companies as published in Scotsman Guide's Commercial Edition, November 2011.

Some commercial mortgage brokers may not realize it, but the U.S. Small Business Administration (SBA) plays a large role in economic development and job creation. For more than 25 years, the SBA has been offering its 504 loan program, which provides affordable financing to U.S. small-business owners for the purchase of land, building construction or renovation of existing facilities.

The program is a combination of private and public financing to fuel small-business expansion, economic development and job creation. These loans are pooled monthly and sold on Wall Street to large institutional investors, giving small-business borrowers access to long-term capital at interest rates usually reserved for Fortune 500 companies.

SBA 504 loans are fully amortizing 20-year loans with low, fixed interest rates that are guaranteed by the federal government. Expanding small businesses seeking capital for commercial real estate have always been prime candidates for SBA 504 loans.

Brokers who understand recent changes to the 504 program, as well as the role certified development companies (CDCs) play in financing these loans, can better help their small-business-owner clients find funds.

Refinancing now possible

Until recently, borrowers could not use SBA 504 loans to refinance existing debt. Funds were only available for projects that involved the initial investment in commercial real estate. The Small Business Jobs Act of 2010, however, temporarily expanded the SBA 504 loan program to allow for the refinancing of qualified, existing real estate debt. As a result, small-business owners who hold commercial mortgages with unfavorable terms can now use the program to restructure their existing debt, allowing them to focus on keeping their business healthy.