Your SlideShare is downloading. ×
SBA Loans for Commercial Real Estate: Making the Right Choice for Your Small Business
SBA Loans for Commercial Real Estate: Making the Right Choice for Your Small Business
SBA Loans for Commercial Real Estate: Making the Right Choice for Your Small Business
SBA Loans for Commercial Real Estate: Making the Right Choice for Your Small Business
SBA Loans for Commercial Real Estate: Making the Right Choice for Your Small Business
SBA Loans for Commercial Real Estate: Making the Right Choice for Your Small Business
SBA Loans for Commercial Real Estate: Making the Right Choice for Your Small Business
SBA Loans for Commercial Real Estate: Making the Right Choice for Your Small Business
SBA Loans for Commercial Real Estate: Making the Right Choice for Your Small Business
SBA Loans for Commercial Real Estate: Making the Right Choice for Your Small Business
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

SBA Loans for Commercial Real Estate: Making the Right Choice for Your Small Business

523

Published on

Many small business owners struggle with the decision whether to buy or lease real estate for their business operations. Now is one of the best times to shift your small business real estate …

Many small business owners struggle with the decision whether to buy or lease real estate for their business operations. Now is one of the best times to shift your small business real estate arrangement from a lease agreement into full ownership. In this comprehensive guide to using SBA loans for commercial real estate, you will learn about:

What is an SBA Loan?
The Pros and Cons of Business Real Estate Ownership vs. Leasing
How to Qualify for a Small Business Real Estate Loan

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
523
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
4
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. What is a Small Business Loan? SBA government-guaranteed loans are small business loans with partial government guaranties from the U.S. Small Business Administration. SBA loans are offered by state and nationally chartered banks and credit unions, as well as by a handful of licensed, non-bank SBA lenders. Since they are available to small • What is an SBA Loan? • The Pros and Cons of Business Real Estate Ownership vs. Leasing • How to Qualify for a Small Business Real Estate Loan Many small business owners struggle with the decision whether to buy or lease real estate for their business operations. Now is one of the best times to shift your small business real estate arrangement from a lease agreement into full ownership. In this comprehensive guide to using SBA loans for commercial real estate, you will learn about: SBA Loans for Commercial Real Estate: Making the Right Choice for Your Small Business
  • 2. businesses in amounts up to $5 million per borrower, they are a great way to finance real estate for your small business. The participating lender provides loan funds from their own assets. In the case of depository institutions, they are lending out their depositors’ money. In the case of licensed, non-bank SBA lenders, they are lending out investors’ money. Both types of lenders can offer more leeway on their credit decisions for small business borrowers requesting SBA loans, due to the partial government guaranty which reduces the lending risk for their depositors and investors. For the small business borrower, this usually means lower down payments, longer repayment terms, and easier qualifying criteria than they will receive from conventional bank financing. Small Business Real Estate Ownership vs. Leasing As with many small business decisions, the choice to move from a leasing agreement into a contract for property ownership is one that should be carefully considered. Each small business owner has his or her own unique situation and circumstances when it comes to the business, all of which should be factored into the ultimate decision. Here are some of the pros and cons of small business ownership that should be considered:
  • 3. In summary, SBA “real estate” loans are actually “long-term small business” loans available for any legitimate business spending category. They provide lower down payments, longer repayment terms, and easier qualifying criteria than conventional bank financing. SBA loans allow small businesses to take advantage of growth opportunities in earlier stages of business development than a conventional bank lender can, due to the partial government backing on the loan. The multiple eligible uses of loan proceeds, along with the more liberal underwriting criteria, make the SBA loan program a most versatile financing option for small businesses with growth opportunities. Pros: • An owner can accumulate equity with long-term real estate ownership through paying down the mortgage and experiencing market appreciation in the value. • A landlord cannot dictate rent increases or uses of the property. The property owner can lock in a fixed overhead cost for his or her facility. • Excess space may be used to produce incremental income from rent. • There may be significant income tax savings from depreciation. • Financing options are more numerous for real estate than for other capital assets. • The business owner can establish a separate real estate holding company to own the real estate asset. • When the business is closed or sold for retirement, the real estate asset will retain important, appreciated value and rental income potential in a separate holding company.
  • 4. Cons: • Being tied to a facility with limited space and a specific location may not be the best strategy for a rapidly growing company. • A down payment is required to finance a building purchase. A business that is still in its early stages of development, may not want to sacrifice cash which can be used for growing the business. • A property owner must be ready to take on responsibilities for maintenance, security, remodeling, and other property management issues. • For an owner who is growing his business in order to sell it, cash used to buy a building may not be its best use. Since businesses are bought and sold based on cash flow, the value created by the cash flow may far exceed the likely appreciation of the real estate during that time frame. • Personal guarantees are required for most small business property mortgages. The prudent business owner should consult with his accountant and his attorney to help weigh the benefits and drawbacks of owning the small business real estate before making any decisions. To reach a decision, the business owner needs a good understanding of real estate value versus
  • 5. business value, as well as a formula for comparing the financial and legal aspects of leasing to those of owning a business property. Additionally, the small business owner should seriously consider contacting and hiring a qualified commercial real estate expert to protect the interest of the buyer (or lessee). These benefits may include full coverage of the commercial real estate opportunities in the small business’ market, a needs analysis, identifying opportunities and scheduling tours, protection from common real estate buying errors, managing the transaction among all parties involved, and savings of time and effort through their professional expertise. How to Qualify fo a Small Business Real Estate Loan If you ultimately decide that commercial real estate ownership is the right choice for you and your small business, you will need to begin considering the steps you will take to procure an SBA real estate loan. Qualifying for a small business real estate loan is different than qualifying for an investment real estate loan. With investment real estate, the lender focuses upon the quality of tenants in the project along with the quality of the location. With small business real estate financing, the lender focuses upon the health and viability of the small business which will own and occupy the real estate. A small business lender uses five components in his analysis of a small business loan request.
  • 6. Business Management Experience The foremost reason for business failure, and therefore a loan default, is the lack of sufficient management experience in the industry in which the small business owner participates. A lender will gather information about the business owners to evaluate the education and business track record of the owners to ascertain their likelihood of continued success in the subject business. The more education and successful industry experience the business owner has, the less risk is perceived in lending money to that business. Equity While a small business lender becomes a partner in the business by extending credit, they are not an owner. A business owner (or equity partner) invests in the business, assumes risk, and he or she is rewarded for that investment risk with dividends and other forms of compensation. A small business lender, however, receives only a stated rate of interest on the money they have invested, and their risk should be commensurate with limited return on their investment. The small business lender expects to see a small business borrower with sufficient “skin in the game” to work hard and achieve success. Once again, the lender will employ ratios to ascertain safe levels of owner equity when making loan decisions. The most common ratio is the debt-to- equity ratio. Small business lenders have access to statistics for various industries which indicate an appropriate level of leverage for the type of business for which a loan is being considered.
  • 7. Not only can the SBA lender recognize cash dollars invested in the business by its owners; but also, assets outside the business pledged as additional collateral for the loan, will enhance what the lender considers equity. Finally, if a small business owner is buying business assets, and the seller agrees to subordinate standby financing, the SBA lender can enhance its debt-to-equity ratio this way. For instance, a seller of real estate may not be willing to negotiate a lower sale price; however, they are willing to carry a second lien note to help the buyer qualify for financing with a lower down payment requirement. If that seller agrees not to require payments before the SBA loan is paid, the SBA lender can add that amount to the buyer’s qualifying equity. Credit History Lenders love statistics. The best indications of how a borrower will meet his loan obligations in the future are the statistics reflected on a credit investigation that shows how other creditors have been paid by the borrower in the past. Small business lenders evaluate the repayment records of the individuals who own the business, as well as for the business itself. Credit reports are available from credit reporting agencies, as well as from direct contact with previous creditors. The more debts which reflect satisfactory payments in accordance with the loan terms, the more comfort the small business lender will derive from them.
  • 8. Collateral We have established the fact that a lender is not an owner, and the lender should only assume a level of risk which is appropriate for the limited income they will receive from lending money. It should be evident, therefore, that the lender will look for other ways to decrease their lending risk when approving loan terms. Besides evaluating risk based upon management experience, “skin in the game”, cash flow repayment ability and credit history, the business lender will also look at collateral offered for the loan. Collateral is represented by assets which can be sold to recover losses if loan payments can no longer be made by the small business borrower. Typically a lender will use the assets being financed as collateral. Other business assets and personal assets can be added to the collateral package to decrease the lender’s risk and to enhance a borrower’s chances for loan approval. .
  • 9. About Bruce Hurta Bruce Hurta has extensive experience in Small Business Lending. He served in a number of commercial lending and banking capacities in his career including President of a Houston-area community bank for 6 years. Bruce also established and managed the Houston office for a non-bank small business lending company where he specialized in SBA lending for 14 years. Bruce spent 4 years as a bank examiner for the Texas Banking Department, 7 years in executive management at two community banks, and 18 years as a specialty SBA Lender. He is active in the commercial realtor and business brokerage communities, along with various business and industry organizations. Bruce is the 2013 president of the Houston Association of Government Guaranteed Lenders. In July 2009, he joined Members Choice Credit Union as the Business Lending Manager to lead their new SBA Lending Program. Click the Banner Below to View Bruce’s Blog for More Information About Small Business Loans and Commercial Real Estate Financing.

×