Tonight I am writing about an area that I have little knowledge about, other than to know that this loan program exists. I have received the information about the USDA loan program B&I and wanted to share it with you. In the proper locations, rural area with a population less than 50,000 people this is a very viable alternative to SBA Financing.
So below is an an email that I got from an SBA Lender back east that specializes in B&I loans. I know this is an area that I am going to be researching over the holidays and plan to incorporate it into our loan programs that we offer.
The main program that businesses are able to utilize is the Business and Industry Program through the USDA. There are no restrictions except for location; it has to be in a town that has a population less than 50,000. Underwriting is similar to doing an SBA 7(a) loan. Unlike going through the SBA, the bank is able to offer fixed rate options. Amortizations are longer through the USDA (30 years real estate/15 years equipment) which generally is able to provide more cash flow to the borrower. The guarantee fee is 2% of the guaranteed portions. Guarantee %’s are 80% up to $5.0M, 70% up to $10.0M, and 60% up to $20.0M.
Eligible properties and use of funding are start up, expansion, business acquisition, commercial real estate, working capital, equipment inventory and soft costs. A crucial difference between the two programs is that the B&I can be used for non-profits which is strictly forbidden with a traditional SBA Loan. In addition there is no business size restriction, and loan amounts up to $20,000,000.
Sign up for your 10 FREE Special Reports on Getting Your Next Commercial Loan Closed. Visit loanforbiz.com the home site for Lightning Commercial Funding.
Wednesday, December 10, 2008
Tuesday, December 9, 2008
Daily Observation - Debt Refinancing Cont.
Tonight we continue with our theme of debt refinancing. Last night we talked about SBA Business Loans and debt refinancing now we shift our focus to commercial real estate loans.
Commercial Real Estate Loans or Investment Property Loans offer a greater chance to refinance them providing you meet certain qualifications and time frames. Both the qualifications and the time frames have changed drastically within the last six months as everything else within commercial finance has.
Before we could re-appraise a property and if there was equity we would be able to refinance any existing debt as well as give our client additional capital providing there was sufficient equity in the property. Loan to Value ratios bordered on 75% to 85%. Lenders were not concerned about the use of the cash out an as long as you were current on the loan, had good credit and the property appraised at more than what you originally purchased it for the deal was done rather easily.
NO MORE
Now most lenders will not even consider a debt refinance if you have not owned the property for at least two years or longer. Next even if you owned the property for two years or more they want to know exactly what you paid for the property and then they calculate what increase in value they believe is really there not necessarily what the appraiser says is there.
Next they look at the net operating income of the property and add at least another 15% to 20% to the bottom line expenses. then they examine your tenants and how long they have been a tenant as well as when their lease expires and the length of the tenancy.
Now the most important point! If they believe that you are using the money from the cash out for other than improving the property (increasing the value to the lender) they are not in favor of doing these loans at all. Paying yourself back for expenses associated with the property is Ok, but using the money for paying debt is not longer looked upon favorably.
Visit loanforbiz to sign up for your 10 FREE Report on getting your next loan closed.
Commercial Real Estate Loans or Investment Property Loans offer a greater chance to refinance them providing you meet certain qualifications and time frames. Both the qualifications and the time frames have changed drastically within the last six months as everything else within commercial finance has.
Before we could re-appraise a property and if there was equity we would be able to refinance any existing debt as well as give our client additional capital providing there was sufficient equity in the property. Loan to Value ratios bordered on 75% to 85%. Lenders were not concerned about the use of the cash out an as long as you were current on the loan, had good credit and the property appraised at more than what you originally purchased it for the deal was done rather easily.
NO MORE
Now most lenders will not even consider a debt refinance if you have not owned the property for at least two years or longer. Next even if you owned the property for two years or more they want to know exactly what you paid for the property and then they calculate what increase in value they believe is really there not necessarily what the appraiser says is there.
Next they look at the net operating income of the property and add at least another 15% to 20% to the bottom line expenses. then they examine your tenants and how long they have been a tenant as well as when their lease expires and the length of the tenancy.
Now the most important point! If they believe that you are using the money from the cash out for other than improving the property (increasing the value to the lender) they are not in favor of doing these loans at all. Paying yourself back for expenses associated with the property is Ok, but using the money for paying debt is not longer looked upon favorably.
Visit loanforbiz to sign up for your 10 FREE Report on getting your next loan closed.
Monday, December 8, 2008
Daily Observation - Debt Refinance
So can we get cash out of our properties to pay off debt? Seems like this is the most popular question we get every day. And of course I will have to answer to the client it depends? So rather than just leave you with that answer I will attempt to shed some light on the question.
Before we can answer it though we have to decide if we are going through an SBA program or are we talking about a straight commercial investment.
To get money back for a loan that is going to be approved by the SBA all debt will have to be 100% business related. In addition to be 100% business related it will all have to be documented, as well as traced from where it was borrowed from to what it was used to pay for.
For example if the money was used for salaries rather than equipment it may be much harder to get the money back through a refinance. The SBA lenders want to see that the money was actually used in the business for purchasing tenant improvements, equipment, inventory anything that can be turned back into future company profits. Working capital loans that are not being used for true expansion are getting much harder to get approved.
So before you ask for a debt refinance as part of working capital for a small business loan make sure you can properly document the need as well as the past expense. The other requirement for debt refinance for SBA loans is that the SBA can only take out a loan that is more expensive then the new SBA loan proposed. Not only must their be a substantial savings between the two loans, the terms of the SBA loan also must be better. Its getting harder and harder to establish the refinance of an existing loan with an new SBA loans.
In my opinion its better to refinance a non-SBA loan with cash or cash equivalent and then apply for an in increase or a new SBA loan that has nothing to do with a debt refinance but a request for expansion capital etc. The request will most likely be approved if its for a growing company with strong financials, this most likely will not work for a start up operation.
Make sure you sign up for the FREE 10 Reports on Commercial and Business loans, or visit loanforbiz.com for more details.
Tomorrow night we examine debt refinance for a commercial investment.
Before we can answer it though we have to decide if we are going through an SBA program or are we talking about a straight commercial investment.
To get money back for a loan that is going to be approved by the SBA all debt will have to be 100% business related. In addition to be 100% business related it will all have to be documented, as well as traced from where it was borrowed from to what it was used to pay for.
For example if the money was used for salaries rather than equipment it may be much harder to get the money back through a refinance. The SBA lenders want to see that the money was actually used in the business for purchasing tenant improvements, equipment, inventory anything that can be turned back into future company profits. Working capital loans that are not being used for true expansion are getting much harder to get approved.
So before you ask for a debt refinance as part of working capital for a small business loan make sure you can properly document the need as well as the past expense. The other requirement for debt refinance for SBA loans is that the SBA can only take out a loan that is more expensive then the new SBA loan proposed. Not only must their be a substantial savings between the two loans, the terms of the SBA loan also must be better. Its getting harder and harder to establish the refinance of an existing loan with an new SBA loans.
In my opinion its better to refinance a non-SBA loan with cash or cash equivalent and then apply for an in increase or a new SBA loan that has nothing to do with a debt refinance but a request for expansion capital etc. The request will most likely be approved if its for a growing company with strong financials, this most likely will not work for a start up operation.
Make sure you sign up for the FREE 10 Reports on Commercial and Business loans, or visit loanforbiz.com for more details.
Tomorrow night we examine debt refinance for a commercial investment.
Thursday, December 4, 2008
Daily Observations - 1031's
Tonight we are going to look at 1031 exchanges. A 1031 exchange is a tax move to avoid the capital gains from selling a property as long as you meet certain requirements by acquiring a property of like kind. The purpose of this blog is not to educate you on the entire 1031 exchange process, which I recommend that you hire a lawyer or a CPA for.
What I want to talk about is the mistake of identifying properties before you have found out that a lender is willing and most importantly in today's economic environment able to fund the transaction. Today not all properties that have been identified are financeable. Even though a property may be at a high CAP Rate and cash flowing like a cash cow should doesn't mean that lender today is going to finance that particular property for that particular borrower.
The problem is that once you "legally" identify a property its identified. AND you can only legally identify three properties. If you are not able to fund any of the three identified that client loses the ability to take advantage of the 1031 exchange, as its now closed to you.
So to avoid losing the 1031 exchange pre-qualify the properties ahead of time before they are legally identified.
For more on getting your loan closed download our free reports at getyourloanclosed.com.
What I want to talk about is the mistake of identifying properties before you have found out that a lender is willing and most importantly in today's economic environment able to fund the transaction. Today not all properties that have been identified are financeable. Even though a property may be at a high CAP Rate and cash flowing like a cash cow should doesn't mean that lender today is going to finance that particular property for that particular borrower.
The problem is that once you "legally" identify a property its identified. AND you can only legally identify three properties. If you are not able to fund any of the three identified that client loses the ability to take advantage of the 1031 exchange, as its now closed to you.
So to avoid losing the 1031 exchange pre-qualify the properties ahead of time before they are legally identified.
For more on getting your loan closed download our free reports at getyourloanclosed.com.
Wednesday, December 3, 2008
Daily Observations - Still Another Reason
Tonight we are back to our SBA discussions. After reading a piece today in the paper there may be another reason why the amount of SBA Loans is decreasing. We actually saw an example of this today with a closing that we just had., but more about this in a minute.
Reason Number Six if you are counting, the SBA Guarantee Fee.
Before I can explain why this is an issue I will first explain what it is. Every loan that a bank issues that is SBA approved is guaranteed by the SBA. The price of that guarantee by the SBA is the Guarantee Fee. The way the SBA Guarantee Fee works is as follows. The SBA charges a certain percent of the loan amount borrowed reduced by 25%, For example a $300,000 loan guarantee fee is based on a $225,000 amount. and that amount is multiplied by a percentage point varying between 2 .0 to 3.0 percent depending on the size of the loan guaranteed.
What this guarantee does is to protect the lender in the event of a default by the borrower. So here's the issue. What I found out today is that if the bank does not dot all their (I')s and cross all their (T)'s perfectly, the SBA guarantee will not pay. Therefore the bank would not be able to recapture their loss.
Its no wonder the lenders are concerned about doing SBA Loans. If you knew that you had no guarantee that the SBA would pay in the event of a default would you do new loans? So back to today's' experience.
We had a closing today that the lender told us the docs would be ready two days ago. It took them over two full days to review the docs after the loan was fully approved and the docs were drawn. It's almost like they were afraid to release the docs. So please advise all your clients that the doc signing dates will be later than what is expected. The reason for this is the bank is reviewing the loan docs, then re-reviewing the docs and then finally having a final review of the docs before they are released.
Now we will see how fast they fund as they have to review the docs again now that the client has signed them all. Stay tuned as we undoubtedly will find reason number seven why the SBA Lenders may not be coming back.
Make sure you sign up for the 10 FREE Special Reports based on my new book GET Your Loan Closed!
Reason Number Six if you are counting, the SBA Guarantee Fee.
Before I can explain why this is an issue I will first explain what it is. Every loan that a bank issues that is SBA approved is guaranteed by the SBA. The price of that guarantee by the SBA is the Guarantee Fee. The way the SBA Guarantee Fee works is as follows. The SBA charges a certain percent of the loan amount borrowed reduced by 25%, For example a $300,000 loan guarantee fee is based on a $225,000 amount. and that amount is multiplied by a percentage point varying between 2 .0 to 3.0 percent depending on the size of the loan guaranteed.
What this guarantee does is to protect the lender in the event of a default by the borrower. So here's the issue. What I found out today is that if the bank does not dot all their (I')s and cross all their (T)'s perfectly, the SBA guarantee will not pay. Therefore the bank would not be able to recapture their loss.
Its no wonder the lenders are concerned about doing SBA Loans. If you knew that you had no guarantee that the SBA would pay in the event of a default would you do new loans? So back to today's' experience.
We had a closing today that the lender told us the docs would be ready two days ago. It took them over two full days to review the docs after the loan was fully approved and the docs were drawn. It's almost like they were afraid to release the docs. So please advise all your clients that the doc signing dates will be later than what is expected. The reason for this is the bank is reviewing the loan docs, then re-reviewing the docs and then finally having a final review of the docs before they are released.
Now we will see how fast they fund as they have to review the docs again now that the client has signed them all. Stay tuned as we undoubtedly will find reason number seven why the SBA Lenders may not be coming back.
Make sure you sign up for the 10 FREE Special Reports based on my new book GET Your Loan Closed!
Tuesday, December 2, 2008
Daily Observations - Words of Wisdom
Tonight we leave SBA behind and talk in general about commercial loans. I found this piece that was sent to me about two years ago and I have updated the ratios and the numbers to meet today's exciting environment. The concepts still work, so take heed. These are Commercial Loan Words of Wisdom, which are becoming part of my next piece. "The mistakes that borrowers make" which I will be sharing in January with our clients and centers of influence.
But tonight make sure that you sign up to receive our 10 FREE Special Reports to GET Your Loan Closed!, or visit loanforbiz.com for much more on commercial loans. Now the words of wisdom:
No such thing as 100% financing
If you have scores below 600, expect much higher rates if a lender can even be found for your project.
If you want a construction loan, you will need at least 30-40% of total project cost. If you don’t have that kind of equity you’re looking at too expensive of a project. High leverage construction loans are only available if you have high net worth and are an experienced developer. PS this was changed from 20 to 25% when the article was first written.
Small loan amounts are often the toughest to work and have the most problems. Don’t waste your time on loans under $200,000
Apartment loans normally take 45 - 60 days from time of signed LOI (letter of interest). If you get a call that requests under 45 days, it’s possible but difficult. I have seen loans close in less time, but the appraisals cost extra, and everybody has to get documents in on time. If one link in the chain breaks, 30 days will come quickly.
Lenders order the appraisal. The typical turnaround is 3-4 weeks.
Always look at purchase contracts ASAP. If they’re short, you will want to have the buyer request an extension and make sure everybody is on the same page. Deals blow up because sellers will not extend contracts, and buyers assume they will.
Commercial loans generally take 45-60 days.
When talking about LTV, just because guidelines say 75%, doesn’t mean the borrower will get 75%. Every deal is based on the cash flows (net income) of the property. I can lend up to 70% or 75% on most types of property, but many times (used to be sometimes), cash flows support much less. Before you quote LTV’s or max loan amount, show us the figures.
But tonight make sure that you sign up to receive our 10 FREE Special Reports to GET Your Loan Closed!, or visit loanforbiz.com for much more on commercial loans. Now the words of wisdom:
No such thing as 100% financing
If you have scores below 600, expect much higher rates if a lender can even be found for your project.
If you want a construction loan, you will need at least 30-40% of total project cost. If you don’t have that kind of equity you’re looking at too expensive of a project. High leverage construction loans are only available if you have high net worth and are an experienced developer. PS this was changed from 20 to 25% when the article was first written.
Small loan amounts are often the toughest to work and have the most problems. Don’t waste your time on loans under $200,000
Apartment loans normally take 45 - 60 days from time of signed LOI (letter of interest). If you get a call that requests under 45 days, it’s possible but difficult. I have seen loans close in less time, but the appraisals cost extra, and everybody has to get documents in on time. If one link in the chain breaks, 30 days will come quickly.
Lenders order the appraisal. The typical turnaround is 3-4 weeks.
Always look at purchase contracts ASAP. If they’re short, you will want to have the buyer request an extension and make sure everybody is on the same page. Deals blow up because sellers will not extend contracts, and buyers assume they will.
Commercial loans generally take 45-60 days.
When talking about LTV, just because guidelines say 75%, doesn’t mean the borrower will get 75%. Every deal is based on the cash flows (net income) of the property. I can lend up to 70% or 75% on most types of property, but many times (used to be sometimes), cash flows support much less. Before you quote LTV’s or max loan amount, show us the figures.
Monday, December 1, 2008
Daily Observation - It May Not Work
Tonight we are back to SBA related blogs. I have been talking to many of the local California lenders that I work with and the consensus is that the plan to move to LIBOR, thus guaranteeing that the secondary market was to follow is DEFINITELY in question this evening.
The thought was that by moving away from a prime based product to a more aggressive LIBOR based product the secondary lenders would come flying back to make a market and thus free up capital for the small business borrower. Nothing today is further than the truth according to the contacts that I have.
I am going to quote a piece from The Los Angeles Times that will perfectly echo my thoughts, then I will come back with what I believe is one of the issue behind the issue. So first the quoted material.
Loans guaranteed by the Small Business Administration have dropped sharply in the last year. Small-business operators have seen other cash sources dry up, including home-equity loans, conventional business loans and even credit cards.
One expert didn't dispute the need to unlock the secondary market for such loans but said it was unclear how, and whether, that would work.
"There is not enough detail on the program yet to really know how much impact it's going to have and whether it will result in freeing up more capital," said the chief executive of CDC Small Business Finance Corp.located in San Diego. His company makes SBA real estate loans and sells them on the secondary market.
That market has suffered as investors find higher interest rates in other markets.
The above are the more obvious reasons why the lenders might not becoming back so quickly. But I heard today that the infrastructure for the loan programs to shift from a quarterly billing cycle to a monthly adjustment cycle is extremely expensive and very complicated to make the transition to. Until this transition is made no lender is going to offer the LIBOR based product. In addition to the infrastructure the pricing is too close to Prime now and there is no real benefit for a secondary market to buy the loans because they would have no where to sell the paper after they acquired it.
For more on the SBA programs visit loanforbiz.com and request our 10 FREE Special Reports on getting your commercial and business loan closed.
The thought was that by moving away from a prime based product to a more aggressive LIBOR based product the secondary lenders would come flying back to make a market and thus free up capital for the small business borrower. Nothing today is further than the truth according to the contacts that I have.
I am going to quote a piece from The Los Angeles Times that will perfectly echo my thoughts, then I will come back with what I believe is one of the issue behind the issue. So first the quoted material.
Loans guaranteed by the Small Business Administration have dropped sharply in the last year. Small-business operators have seen other cash sources dry up, including home-equity loans, conventional business loans and even credit cards.
One expert didn't dispute the need to unlock the secondary market for such loans but said it was unclear how, and whether, that would work.
"There is not enough detail on the program yet to really know how much impact it's going to have and whether it will result in freeing up more capital," said the chief executive of CDC Small Business Finance Corp.located in San Diego. His company makes SBA real estate loans and sells them on the secondary market.
That market has suffered as investors find higher interest rates in other markets.
The above are the more obvious reasons why the lenders might not becoming back so quickly. But I heard today that the infrastructure for the loan programs to shift from a quarterly billing cycle to a monthly adjustment cycle is extremely expensive and very complicated to make the transition to. Until this transition is made no lender is going to offer the LIBOR based product. In addition to the infrastructure the pricing is too close to Prime now and there is no real benefit for a secondary market to buy the loans because they would have no where to sell the paper after they acquired it.
For more on the SBA programs visit loanforbiz.com and request our 10 FREE Special Reports on getting your commercial and business loan closed.
Subscribe to:
Posts (Atom)
