SBA and Commercial Finance and Investment News

OK, we will give you the answers on Monday the 7th.  To ponder over the weekend, here are the questions on 7A, 504, and the Horizon West USDA program. 

____Pricing at Horizon West  is different for special purpose and multipurpose on the 504

___ Your premium on the 504 is based on the amount of the FIRST mortgage

__   First mortgage on a 504 is usually 50 percent loan to value/loan to cost

__You CAN prepay up to 20% of the first case by case on a 504 with no penalty

___The 504 second is called the debenture portion

___Debentures have a 10 year long prepay based on the interest rate

___You cannot charge an ORIGINATION fee on a 7A

___You CAN charge a CONSULTING fee on a 7A

___7A loans can be used for refinances

___You CAN earn up to 2 points PREMIUM on a 7A origination

___504 and 7A loans have NO BALLOON PAYMENTS

___10% is the typical minimum cash injection

___You can offer CONSTRUCTION financing with 7A or 504 loans on multipurpose property

___You can offer CONSTRUCTION with 7A or 504 on SPECIAL purpose properties like car washes

___USDA loans are for properties in rural areas of 50,000 or less

___USDA’s guarantee fee is 2% on the 70 or 80 pct guaranteed amount

___USDA loans CAN be used for INVESTOR properties

___USDA loans require a case for JOB CREATION or RETENTION

___Horizon West will consider hotel-motel financing under the 7A program

___Assisted living, funeral home, day care and ESTABLISHED restaurant financing is available under 504   and 7A

___Office, industrial and retail condominium and med office financing can be a good business focus

The SBA will now – finally — as of regulations published October 28 — guarantee 80 percent of 504 first mortgages that are pooled and sold on the secondary market.

The 504 relies upon banks and other lenders to make a first mortgage for 50 percent of a project’s cost. This loan is combined with a second mortgage provided by your local CDC – for example, www.coloradolendingsource.org.  The secondary market for 504 first mortgages evaporated when the credit crisis hit and there have been few players.  Now, in addition to Zions, and Wells, there are regional and national banks getting back in.  Chase, for example, is expanding and may be hiring as many as 325 to expand its SBA and commercial platform.  And new wholesalers like Horizon West www.horizon-west.com  are bringing the 504 PREMIUM back – so banks and mortgage bankers and brokers can originate these loans at a real profit.

“We are positioned to bring the 504 program to community banks and originators across the country,” says Keldon Moldre, President of Horizon West.  The Company has a nationwide wholesale platform for community banks and commercial mortgage bankers and is sponsored by Midwest Business Capital among other lenders.   “And poolers will be able to enjoy loan production through the Horizon West network on a scale that fits their need for product to fill these new pools.” 

To quote SBA Director Karen Mills, (www.sba.gov),  “This new program will stimulate activity in the secondary market, ensuring lenders have a place to sell first mortgage loans on their books and in turn have liquidity to make more loans to small businesses,”

Lenders will retain at least 15 percent of each loan and pool originators will take a 5 percent stake. First mortgages associated with a 504 loans must have been disbursed on or after Feb. 17, 2009, to be included in an SBA-guaranteed pool, so the new liquidity is RETROACTIVE. 

Debentures, which are the SBA-guaranteed second mortgage portion of 504 loans, totaled $3.8 billion in fiscal 2009, a drop of 28% from 2008.  Look for the numbers – and YOUR production – to improve dramatically.

It’s a bit less exciting than the Denver Broncos’ 4 – 0 surprise record.  And no surprise to any of us who originate and process SBA.  But the cumulative effect of credit concerns, credit officer conservatism, and the economic stimulus and personel cutbacks and collapse after collapse and consolidation in our well loved SBA industry had this scorecard for the Governments fiscal:  The  Small Business Administration guaranteed 44,221 loans for the FY ended September 30 2009 . That’s 36% DOWN  versus 2008. Total dollar volume also fell— Volume in Fy 2009 totaled $9.3 billion, a 27% drop.  Goodbye CIT, goodbye Bank of the West, Citi, Wachovia, regionals.  Thanks, Wells, at least YOU were there.  And so are about a hundred or som community banks, some ably represented by good quality consultants like Commercial Partners of Illinois.  www.commercialpartners.com.  Now there’s a plug!  Stay tuned.

Those in the know know that SBA + BDO + BANKING = NOT NOW. At least that’s the sentiment out there. But community banks are waking up and smelling the profits. Their priorities: Control risk, add revenue, grow the client base, avoid compliance problems. Government guaranteed lending does all of those things. Shifts rsk, generates NII, generates a great ROI, doesn’t grow the portfolio and — done well — it poses little compliance risk.

On the job front: Expect growth in our sector as TALF rolls out and the Fed buys SBA backed bonds to move the senior 504 pieces. The cavalry is here! Viva Geitner.
Overall, Reuters reports today that:
“Seventy percent of bank executive respondents expect the job market to remain the same or worsen next year, and improvements in the real estate market and consumer confidence topped the list of triggers for a full recovery.

Though a turnaround in financial services is expected to be slow, 78 percent of the financial heads forecast improvement in 2010 as revenues and profitability improve.

And the worst seems to be over with job cuts, as two-thirds of respondents said they had completed their head count reductions and only 15 percent contemplated further action.”

So it ain;t that bad. There IS a light at the end of the tunnel.

Want some more bad news? Not here! No, if you want more doom and gloom, read about the avalanche of CMBS maturities that are going to kill commercial RE lending for years. Or read about the sad state of (gulp) multifamily in troubled housing markets across the US. So no Gloom here – just BOOM. Because SBA lending is moving to the head of the pack in America’s recovery. And THAT, my friends, means jobs and loans and commissions and, dare I say it, worthwhileness for you and I.

Two positives for today.

One, the SBA 7A limit MIGHT go up – might even double if Congress goes along with strong lobbying from the Industry. The bankers’ goals: an increase in the $2 million cap on 7(a) loans, which is anachronistic; and an extension of changes that cut borrower fees and increased the maximum guarantee to 90%.

Ok, and the 504 that you can’t find a lender for? What will happen to the market if the SBA guarantee extends to the senior 504 loan that so many banks are still afraid of? Need a hint – look at the prices banks are paying for 7A guarantees – do I hear 108? Same – or similar- lifts may be in store for the 504. Gee, I’m a Poet and don’t know it.

Colorado’s own Betsy Markey has introduced a pretty popular bill, 2527, that might also squeak by. Imagine if under 504 you could allow cash-out for any good business purpose up to a pre-defined LTV of, say, 80%. Cool! 80% cash out. And a rates better by almost 100 basis points compared with life company debt.

So, see, not too hard. Focus on the positive and when the law changes, sell like crazy! Ciao.