SBA and Commercial Finance and Investment News

Welcome!

Centennial Lending, whom I represent as senior Business Development Officer, is a credit union service organization owned by 13 credit unions in Colorado and Wyoming.  We lend in Colorado, Wyoming and Nebraska and finance” small” projects from as little as $100,000 up to $5 MM.  We like small retail centers, freestanding retail, office, industrial and retail condominiums, neighborhood centers, office buildings, industrial buildings and of course apartments from 5 to 100 units.   We also finance 1-4 unit rental housing.  We offer a 5+5 fixed rate and a 10 year fixed rate permanent loan, with no prepay penalty.  And construction financing for qualified projects. We also are experts on the SBA 504 and have financing up to 90% LTV for owner-user buildings.

Please click here to download our most recent rate sheet for commercial and multifamily construction and permanent financing:

Rate and Program Summary Centennial Lending Commercial Mortgages January 2012

And here are some of our recent closings

Success Stories by Centennial Lending

Contact Tim Thomas for more information, tim.thomas@centennial-lending.com, 303-746-9169

Yes, I write TWO blogs:  this one at www.sbafinancenews.com and www.coloradoloaninfo.com.

Have you ever wondered why the prepayment penalties are so high when you take out an SBA 504 loan?  The 504, as you know, consists of two loans:  a first mortgage, funded by a credit union or a bank, typically, at about 50% LTV, and a second mortgage, typically 20 years fixed rate, that is funded by a Certified Development Company, or CDC, for the “junior” 40% of the debt.

The 504 program is great because it enables you to get 90% financing in most cases – lower in some – with a combination first and second mortgage loan on your commercial building, or commercial condo, provided you have 2 years in operation, are “for profit,” and have a net worth for the business of under $15 MM and net profit of $5MM or less per year over the last two yours.  In other words, you need to BE a “small business.”

You can refinance your current loan(s) and/or buy a new building or commercial condo.

The SECOND trust deed loan is funded with a debenture, which is a form of a bond.  Bond investors need to know their yield is in place for a period of time, so in order to sell the debentures, the SECOND loan, which is actually the SBA 504 guaranteed loan, has a hefty prepayment penalty for the first half of the loan.  We’ll talk about this in more detail in future installments.

IF YOU BORROW from a bank or a credit company, chances are you will also have a large prepay penalty on the FIRST mortgage part of the 504.  Those penalties are (name your poison):

• The most popular: 5% the first year, 4% the second, 3% the third, 2% the forth, 1% the fifth
• Or you can have 5% flat for 5 years
• 7/6/5/4/3/2/1
• 5% for 6 years then 4/3/2/1
• Here’s one, I call it the rocket prepay: 10/9/8/7/6/5/4/3/2/1
• Or for the truly desperate, 10% a year flat for TEN YEARS

These penalties exist because your lender (the bank, let us say, ) either (a) wants to SELL your loan on Wall Street for a huge premium, or (b) just likes a large prepay penalty.

Now for the good news in this story: Credit unions.   Centennial Lending originates loans for our credit union owners.  We offer great fixed rate 504 first mortgage loans WITH A ZERO prepay penalty.  ZERO, ZED. NADA.  You can pay off our loan any time without any penalty.  You can pay DOWN our loan and reduce your principal ANY TIME without penalty.  We think paying down debt is a good investment for your company, particularly with alternative investments yielding so little.  So we do not charge any prepay penalty.  Instead, our credit union partners just keep your loan in portfolio instead of selling them to an investment bank.  We recycle your money and lend it out again as you prepay.  We think it’s good business.

Contact Tim Thomas at 303-746-9169 (tim.thomas@centennial-lending.com) for all the details.

OK this is it.  The 10 year Treasury hit ONE POINT EIGHT EIGHT today.  FHA fixed rate firsts are at 3.75.  30 year fixed residentials are at 3.875 no points no discount.  WHOA.  SBA 504′s are 5-5.25.  Life company money is at 5 and may be below for TEN I said TEN years.  IF YOU ARE LOOKING FOR MONEY ON A REAL ESTATE SECURED basis, commercial or res, NOW NOW NOW is the time to pull the trigger.  EM tim@silverlineadvisors.com, I’ll help point you in the right direction.  It may not get ANY better than this, a historical low.

Let me tell you about the reality behind the numbers.  The reality is that if you are a small business startup, a franchise startup or entrepreneur, and you want to create jobs, chances are 9 out of 10 or maybe 19 out of 20 that you will get so discouraged by the process of borrowing money or raising money, despite your plan, despite the business incubators that exist, that your plan will not be realized and the jobs you were going to create will not come into being. 

And if you DO go ahead, on a wing and a prayer, financed by credit cards, and maybe a home equity line of credit in the unlikely event you have any equity, you will read articles that send you to factoring places whose APR’s are 20-30%, or shysters that will take a big upfront fee and deliver nothing, or SBA lenders who will charge you $3,500 up front for processing and appraisals and the like and take your house and charge a 3% guarantee fee and make you take a floating rate loan in a rising rate environment, just what your business needs,  and make you buy life insurance you do not need and make you WAIT 60-90 days for the answer that they need just 10 more pieces of paper.  Sound cynical?  I am. Kill a tree, or three, and pray.

Let me give you some HOPE.  There are a few CREDIT UNIONS around who are going to be filling the gaps to the extent they can, doing the relationship, make sense loans for real people  that banks are way too scared to make because their directors are getting sued and they cannot get past their last Examination and risk is the4 antithesis of Safety and Soundness.  The Credit Unions have a few things the Banks have not got.  Better prices because they are owned by their DEPOSITIORS.  Better prices because they are NONPROFITS.  More experience doing customer centric unsecured loans to people they know.  And now they are learning SBA.   Start sometimes with a portfolio loan; follow with a 7A or 504 or Small Loan Advantage. 

It was a good week in Lake Woebegone.  The economy is improving; it’s just that your banker does not know it.

Per Bloomberg this morning, “Employers in the U.S. added 192,000 workers in February, amid an improving economy and more seasonable weather, and the unemployment rate unexpectedly declined to 8.9 percent, the lowest level since April 2009.

The gain in payrolls follows a 63,000 increase in January and compares with the 196,000 median estimate of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. Employment rose in manufacturing, construction and temporary help agencies, while state and local government payrolls slumped.”

Get your game on, you bankers, lest the little credit unions are going to create the jobs.

The 504 Refinance is HERE.  What it means is you can get 90% CLTV, which is helpful since values have fallen 30-40% most places,  So you can get cash to pay off that balloon payment, keep Elmira Gulch from foreclosing on the building so you can stay in Kansas,,  I’ll write about the specifics later but now is the time to get your commercial borrowers refinanced.  Fixed rate 20 year second from your local CDC, and a 5 year adjustable (or some such) first mortgage at a reasonable rate from lenders like Horizon West (www.horizon-west.com).  The CDC to call here in Colorado is Colorado Lending Source, they also have the best website:  www.coloradolendingsource.0rg. 

So where are rates GOING?  Not as high as fast as you think.  Time to look at (don’t laugh) some good municipals with a short call.  Yields 5-8 taxable equivalent.  Higher in some areas.  And yes there are some GOOD RELIABLE bonds out there.  We like essential purpose revs — sewer, water, that kind of thing.  No matter how bad it gets you have to drink and flush. 

My friend and coleague, WSJ contributor and Fed guru Lou Barnes said this week ” Interpreting markets is hard these days.

The deafening financial-market recovery…inflation…recovery…commodities…recovery…sustained…recovery… makes it hard to concentrate. Maybe we could set the whole thing to music and hire the Super Bowl babe to sing the wrong words.

  Inbound data do not support acceleration of the US economy (retail sales half of February forecast, flat industrial production, mortgage apps falling near record lows…). Global food and commodity prices are rising, igniting inflation fear among those who have worried about inflation ever since it broke in 1981, never to return. These price rises are cost increases likely to slow the US economy, as there is no wage growth with which to pay them, or to pull into broad-gauge inflation.”

     Public policy is the deal, now — not markets, and not even the economy. In gathering force, ordinary civilians have decided: given a flat-broke Treasury, and a choice to borrow, to raise taxes, or to cut spending, we’re going to cut spending. Oh, we’ll have higher taxes, but by three or four to one, spending cuts will dominate.

One useful way of thinking about our national debt, and I like simpler numbers, don’t you – is they way our friends across the pond do – debt as a percentage of gross domestic product, the sum total of what we as a nation produce in a year. As my colleague Lou Barnes writes,  “in today’s dollars, 1970 Gross Domestic Product was about $4 trillion, debt about $1 trillion. Today GDP is about $15 trillion, debt $9.4 trillion. Debt is 63% of GDP now versus 25% in 1970, but rather worse, debt is growing another 8% of GDP each year.”

I sell bonds and pass-through securities guaranteed by the Small Business Administration for a living.  With debt rising so quickly and approaching European levels,  no wonder we hear rumblings about Moody’s and S&P threatening to downgrade US debt to less than triple “A.”

At some point, the Fed is going to have to stop artificially holding up Treasury prices (and holding down yields).  Once QE2 rides into the sunset, long term rates will have to go up, and that’s bad for long bond holders because the dollars they get back are worth less than the ones they lent out when they bought the bonds.  Of course, as I have pointed out many times, if you own an individual bond rather than part of a bond fund, you don’t get hurt as much because you can just relax and hold your bonds to maturity, and still get 100 cents on the dollar even if that 100 cents is worth only 90 cents after inflation.  You, the bond holder, at least still get back 100 cents in real dollars.  But the bond fund investor’s ETFS or mutual fund shares drop in real dollar value and the bond funds have to sell bonds (at the wrong time) to generate the cash to fund redemption as investors buy gold and stocks.   So bond funds have to take the hit.  And so do you.  So all I am saying, if you are going to own bonds – even the shorter taxable variety with a 3-5 year call or maturity that appeals to credit unions, for example, own the individual bond, rather than a fund.

So the institutional investors I serve are looking for bonds and agencies that adjust and protect them agaist inflation, that will hold value as rates rise and don’t have credit risk to the balance sheet.  Which is why so many credit unions and banks are looking at SBA and USDA guarantees and passthrough securities  – they typically adjust and often have high caps or no caps.  Hence they will hold value and match liabilities.

SBA and USDA guaranteed notes and pass-throughs not only adjustable monthly or quarterly, or in 3 or 5 year increments (check out the new 504 first lien pools, more on that later) they have floors and prepay protection.  Banks and credit unions are snapping these “full faith and credit” guarantees up to build a fortress-like balance sheet. The premiums are scary – unless you know how to underwrite around them.  I have updated my White Paper on this subject and it’s available just click here. Also, on Thursday 27 January we have a webinar for credit unions on How to Start Your Own SBA Department.  For an invitation, email me at timothyethomas@gmail.com.    And for the new White Paper on setting up for SBA,  click here.

Cheers!

Bond prices were up last week, interest rates down to steady.  SBA and USDA product is being sucked off the shelf as fast as we can originate it.  The new 504 first lien pools sold within an hour.  They’re safe, AAA investments.

Fortunately we will see more product in 2011 because the new $5MM limit on 7A loans and the new refinance capability and higher limits on 504 loans has also become a reality.  I am at the NAGGL conference in Anaheim this week.  Upbeat on SBA loans, SBA WAC pools, and both bank qualified and taxable municipal bonds.  My world is good. How’s yours?

In the broader index. Brought to life each week by my friend and colleague Lou Barnes:

“Industrial Production, Capacity Utilization, Building Permits, and the Philadelphia Fed Business Index were weaker than expected.  September Housing Starts increased 0.3% on expectations that starts would fall by 3.5%.  Weekly jobless claims fell slightly.  The Fed’s Beige Book, a survey of economic conditions in the 12 Fed districts, showed modest improvement compared to the previous report which showed slow economic activity.  It is widely expected that the Fed will announce the details of its second round of quantitative easing at the conclusion of its FOMC meeting on November 3^rd. “

It is expected that the Fed will purchase longer dated Treasuries to help support lower interest rates.  That will prop up bond prices.  Buy now, they’ll get more expensive.

The Dow Jones Industrial Average is currently at 11,119, up about 70 points on the week.  Crude oil futures are currently trading at just under $81 per barrel, down about $0.50 on the week.  The Dollar is slightly stronger versus the Euro and Yen on the week.

Next week look toward Monday’s Existing Home Sales, Tuesday’s Consumer Confidence, Wednesday’s Durable Goods Orders, Thursday’s weekly jobless claims, and Friday’s first look at Q3 GDP as potential market moving events.  Also, the Treasury will auction $109 billion in new debt next week adding supply pressure to interest rates.  Yin:  issue debt.  Yang:  Buy back your own Treasury bonds.  Circular economics.

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The  SBA has now, officially, permanently increased 7(a) and 504 limits from $2 million to $5 million, and for manufacturers and certain energy- related projects seeking 504 loans, to $5.5 million.

Other programs – mico loans, Export and Express have been increased as well.

Under the new law,  SBA 7(a) loans are  increased from $2 million to $5 million, and SBA 504 loans can now go up to a total loan amount of $12 million between the first lien and the debenture (second).  This means a great influx of midsized businesses to the government guaranteed loan market.

And the 504 program can facilitate REFINANCES.  It’s a great program — with a 20 year fixed rate second from your local CDC and a first that adjusts typically every 5 years on a 25 year schedule.  Wow.  Get on the phone and call your customers.

The SBA fee waiver for borrowers and 90 percent guarantees under 7A have been extended through 31 December.  Yeah!  .”

Get in the GAME.  Learn about origfnating SBA and find out about the fee and growth opportunities — fees if you sell the whole loan — growth if you intelligently keep a portion of the risk.

First, the bad news:  the economy is still, to be generous, sluggish.  My compadre Lou Barnes writes,

” One of these monthly payroll reports will signal a turn in the economy to self-sustaining growth, and splatter the bond and mortgage markets all over the windshield.”

Not today.  Economic reports weaker than expected included the New York Fed Empire State Manufacturing Index, August Industrial Production, August Capacity Utilization, the September Philadelphia Fed Business Index, and the University of Michigan Consumer Sentiment Index.  The August Consumer Price Index (CPI), a measure of inflation, was up 0.3% on expectations that it would be up 0.2%.  Year over year, though, CPI is up just 1.1%.  Excluding food and energy, core CPI is up just 0.9%.

The Dow Jones Industrial Average is currently at 10,589, up slightly over 100 points on the week.  Crude oil futures are currently trading at $73.35 per barrel, down over $3 per barrel on the week.  The Dollar weakened versus the Euro and strengthened versus the Yen on the week.

Depressed?  Don’t be.  We are all waiting for SB 5297 to add volume for the SBA world, and JOBS JOBS JOBS.  And FINALLY it looks like the House will listen and the Senate version may pass.  Here’s the latest per my colleague Jordan Blanchard at CDC Small Business Finance in Pasadena:

the following bill (HR 5297) is expected to be on the President’s desk.  It will dramatically increase 7A production and double 504 production across the country.

SBA 7A Provisions

• Increase to maximum SBA 7a loan amount to $5,000,000
• 90% guarantee through December 31, 2010
• Fee waiver for the rest of 2010 (subject to available funding)

SBA 504 Provisions

• 504 Debenture increase to $5,000,000 for most applications and $5,500,000 for

`manufacturers

•  Two year window for refinancing debt (details provided below)
• 504 Debenture increase to $5,000,000 for most applications and $5,500,000 for program from the date of the first pool issuance – first pool issuance expected to be September, 2010
• Fee waiver for the rest of 2010 (subject to available funding)

First Mortgage Pool Program Update

• The extension to the FMP program was critical as FMP program which allows us to sell the FIRST lien portion of the 504 at prices around 105.
• That program was set to end in February, 2011. The new sunset date is slated to

be September, 2012, or $3B in allocation – whichever comes first.

• Increased 504 activity by community banks due to capital, liquidity and regulatory relief.
• Community banks can now compete against larger banks by offering lower rates and longer fixed periods while achieving an above market yield.
• ncreased 504 volume by non-bank lenders who can sell 85% of each loan.
• A significant increase in wholesale liquidity for special purpose properties such as hotels, gas stations, car washes, and restaurants.
• A new industry of Pool Originators who are the first participantsin the new era of ‘skin-in-the-game’ securitizations.
•  Interest in the SBA 504 wholesale first mortgage market (post FMP) by the nation’s largest banks including Bank of America Merrill Lynch.
• Significant increase in volume for CDC’s from both bank and non-bank lenders.
• A new era for those CDC’s that choose to become a secondary market resource for their first mortgage partners.