The consolidation of the banking industry has led to the loss of many smaller and community banks, which were often the best source of financing in some markets; the larger regional banks just haven’t filled the void. Purchase financing is much harder to obtain as well, given the fact that many properties on the market have occupancy issues, whether real estate owned or for private sale.
For the better properties, there will always be a source. Expect bank and credit-union interest rates to be all over the board, but the normal program looks like a three- to five-year fixed rate in the low-5 percent to mid-6 percent range, with a maximum 10-year term and 15- to 25-year amortization.
The SBA program can take the form of a fully amortized adjustable or fixed rate under the 7A program, or the 50 percent LTV first-trust deed with up to 40 percent LTV SBA second trust deed under the 504 program. The SBA second trust deed is always a 20-year fully amortized fixed rate, which is in the mid-5 percent range today, while the bank first trust deed will follow the bank’s normal lending program offerings.
As the economy continues to recover, restructure and redefine itself, the interest rates have remained relatively low even amidst talk of quantitative easing, inflation and recession. While we may not see a return to normalcy for quite a few more years, it’s likely we will see a rise in interest rates. However, the government is doing everything it can to keep rates low in an already fragile economy, so we may not see much of a rise until the economy picks up and the 2012 elections are complete.
The bigger threat to interest rates in the near term is the U.S. debt rating, which appears to be headed for a downgrade if Congress cannot find a way to balance the budget and reduce federal spending to a sustainable level. Washington must treat our debt as a national security issue or everything could get turned upside down very quickly.
In conclusion, steady as she goes. Continue to improve property cash flow, and do your best to wait out economy and survive as we look for signs of improved employment numbers and GDP (gross domestic product) growth. If you’re at a point where your property is financeable, do it now while the rates are still low. Even if you have a few years left on a fixed rate or a minor prepayment penalty to refinance, it may be better to pay the penalty and lock in a lower long-term fixed rate than take a chance on what the rates will look like next year.
David Smyle is president of La Mesa, Calif.-based Benchmark Financial, a commercial mortgage banker providing financing options for self-storage and other commercial property types nationwide. For more information, call 877.862.7916; visit www.benchmarkfin.com.