The SBA programs will offer the highest advance rates available of the major small-balance loans programs and, in some cases, up to 90 percent. However, these loans are not meant for all owners. These loans are focused on active business owners and operators, not passive investors.
- SBA offers short-term (7a) and long-term (504a) money, with floating and fixed rates.
- In general, higher leverage loans are achievable, up to 90 percent LTV, with a realistic LTV at 85 percent.
- These programs offer the ability to build in additional project costs such as capital improvements and working capital.
- SBA loans can be used for property expansion and new construction in some scenarios.
- Properties in secondary and tertiary markets can qualify.
- There are stringent document requirements.
- There are high transaction costs, typically between 3 percent and 4 percent of the loan amount.
- Processing and closing times can be long, which poses problems for acquisitions (with the small-loan program as the exception).
- Borrowers with significant net worth and liquidity will not qualify.
- Third-party managed properties will have difficulty qualifying.
- Prepayment restrictions are fixed but can be high.
A number of private lenders are active in small-loan transactions. These lenders offer the most flexibility, as they are willing to lend on non-cash-flowing properties, properties in lease-up, refinancing of discounted payoffs and mortgage-note purchases. In exchange, interest rates are typically higher, between 6 percent and 9 percent. Some newer private lenders have started to offer non-recourse financing for small-balance loans under 70 percent LTV. Loan terms can vary from months for a true bridge loan to 10 years for a stabilized property.
- There is tremendous flexibility in terms of loan structure and term.
- These loans often can close in a matter of days rather than weeks or months.
- Deals can be under performing or non-performing; however, there needs to be a clear road map to a permanent finance solution.
- These loan programs have the highest costs, both in interest rate and transaction costs, and upfront points.
Small-balance borrowers have a number of options for loans under $2 million, including some newer entrants in the lending market. Many local and regional banks have now cleared their balance sheets of their non-performing loans and now have the capacity to lend again. With more potential lenders comes increased competition, allowing borrowers to achieve more favorable rates and terms. Now’s a great time to refinance or acquire an additional property to take advantage of the new, borrower-friendly lending environment.
Noel Cain is a vice president at Chicago-based The BSC Group, a commercial real estate financing advisor and provider of debt and equity capital solutions for self-storage owners nationwide. Cain provides mortgage brokerage, financial consulting and loan-workout solutions. For more information, call 847.778.4661; e-mail firstname.lastname@example.org; visit www.thebscgroup.com .