Will 2012 be the year of SBA lending? 7(a) and 504 loans were created to "level the playing field for small- and midsized-business owners. I talk about the boost this type of loan can give your company, a new life for the 504 refinancing, and how the clock is ticking for these types of loans all in the December 2011 publication in the Scotsman Guide.

1. By Christopher Hurn
CEO
Mercantile Capital Corp.
Will 2012 Be the Year of SBA Lending?
After a historic year, expectations are high for next year’s Small Business Administration loan volume
W e’re at the end of 2011, and the
economy has not yet rebounded
from the Great Recession. There’s
not much good news these days — mostly
we hear reports about rising unemploy-
owners. The 504, in particular, has gotten
increased attention since the passage of
the Small Business Jobs Act in Septem-
ber 2010. That law made it possible to re-
finance commercial debt with a 504 loan.
a reality. It will allow those business own-
ers who bought property a few years ago
to tap their equity as a source of working
capital — something that’s in short supply
from conventional lenders today.
ment, declining property values and other This was great news for small-business The second meaningful change ad-
depressing statistics. It’s not all bleak, how- owners who bought their commercial prop- dresses business owners who have loan
ever. Commercial mortgage brokers can look erty using conventional financing and were deferments and/or modifications on their
to U.S. Small Business Administration (SBA) given a second chance. Many small-busi- commercial real estate mortgage. As long
loan products for increased business. ness owners have been able to get control as they have not been past due on these
over their real estate expenses with the newly modified terms, these business own-
The silver lining long-term, below-market, fixed-rate financ- ers are now eligible for 504 refinancing.
An increasing number of mortgage profes- ing that the 504 loan provides. Here’s a quick rundown of the 504 refi
sionals and business owners are turning to Although the 504 refinance program has program eligibility requirements, including
the SBA. The good news for your small-busi- the potential to help small businesses get these new changes. Refinance proceeds
ness clients is SBA lending is not only in- back to growing and creating jobs, it’s fallen now can be used for:
creasing, but it also is at all-time high levels. short so far. Although it was established in •• Owner-occupied commercial real estate;
The SBA’s fiscal year ended this past September 2010, it wasn’t until this past •• Machinery and equipment;
Sept. 30, and this year was one for the re- February that the rules governing the pro- Itemized business expenses; and
cord books. In 2011, the SBA supported gram were rolled out. Some of these regula- •• Closing costs associated with the
$30.5 billion in small-business lending. tions were so restrictive that rejection rates project.
The previous record, $28.5 billion, was set were high. For fiscal year 2011, $7.5 billion The loan being refinanced must have
in 2007. From 2010 to 2011, SBA lending in- was set aside for 504 refinances, but only been current for the past year with no
creased by an impressive 35 percent. about $270 million (roughly 3 percent) were past-dues of more than 30 days. Loan de-
These statistics lead some small-busi- put to use. Another $7.5 billion is allotted ferments and/or modifications are now eli-
ness lending experts to predict that 2012 for fiscal year 2012, and recent develop- gible for refinancing as long as the borrower
will be the year of the SBA. SBA lending will ments likely will make it possible to use is current on the modified terms. Before the
continue to do well until conventional small- more of these allotted funds. refinance can be applied for, the debt must
business lending picks up. This is partially have been in place at least two years, and
because conventional lending sources New life for the 504 refi the small business must have been in busi-
haven’t completely thawed yet, and SBA This past Oct. 12, the SBA announced sev- ness at least two years.
lending is readily available. The SBA has eral changes to the 504 refinance program. continued >>
been regarded by many as a source of sec- Two changes in particular opened the pro-
ond-class loan products, but with few other gram to more small-business owners and
options, business owners and mortgage will allow more uses for 504 refi proceeds.
professionals are quickly finding that SBA Proceeds from an SBA 504 refinance Christopher Hurn is CEO of Orlando, Fla.-­ ased
b
lending is invaluable. can now be used for itemized business Mercantile Capital Corp., a three-time Inc. 500/5000
company, two-time U.S. Small Business Admin-
expenses, like salaries, rent utilities, in-
istration Financial Services Champion and one of
A small boost ventory, paying down payables and other the largest providers of SBA 504 loans nationwide.
The two flagship SBA loans — the 7(a) and business obligations. This is essentially the Reach Hurn at (866) 622-4504. Additional informa-
the 504 — were created to level the play- cash-out refi option that was mentioned in tion about SBA 504 refinancing is available at
ing field for small- and midsized-business the original law, but it only now has become SBA504LoanRefi.com or 504Experts.com.
Reprinted from Scotsman Guide Commercial Edition and scotsmanguide.com, December 2011
All rights reserved. Third-party reproduction for redistribution is prohibited without contractual consent from Scotsman Guide Media.

2. << continued
The borrower’s 10 percent contribution will continue to fill the gap. Property val- With $7.5 billion set aside and ready to be
may be satisfied by cash, equity in the eligi- ues remain diminished and interest rates used just for refinances (and another $7.5
ble fixed assets serving as collateral for the are at all-time lows, which means that billion available for acquisitions and new
refi project or equity in any other SBA-ap- purchasing or expanding commercial fa- construction), the 504 program may be the
proved fixed asset. It is not possible to re- cilities is an attractive option for small- shot in the arm that small businesses need.
finance loans that have an existing federal business owners. The long-term fixed Remember that the refinance provision of
guarantee. This includes SBA 7(a), SBA 504 rates that the SBA 504 program provides the SBA 504 loan expires in September
and U.S. Department of Agriculture loans. make this opportunity even more prac- 2012, unless an extension is granted. Smart
tical. For much of this year, 504 inter- mortgage professionals should work hard
The clock is ticking est rates have ranged from 4 percent to to make use of the allotted funds before
Until conventional small-business lend- 5 percent — and this is fixed for 20 years, next September. •
ing thaws, it appears that SBA lending typically with only 10 percent down.
Reprinted from Scotsman Guide Commercial Edition and scotsmanguide.com, December 2011
All rights reserved. Third-party reproduction for redistribution is prohibited without contractual consent from Scotsman Guide Media.