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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   April 2004

A Guide to Financing Owner-Occupied Commercial Properties

It is no small feat to keep track of the various classes of financing available to real estate buyers: prime, sub-prime, high LTV, construction, etc. However, failing to do so can result in lost income if you are unable to place clients seeking financing with the product that best suits their needs.

While owner-occupied properties may not be your "bread and butter”, every broker is bound to come across such opportunities from time to time. Having contacts in this market can allow you to win and retain customers who, based on your demonstrated broad knowledge of the real estate industry, will come back to you for their next real estate financing need.

In order to effectively place owner-occupied properties, every commercial mortgage broker should become familiar with SBA loans.  SBA 7(a) loans are extended by a bank or licensed non-bank lender to a small business owner. The government agency known as the Small Business Administration (SBA) guarantees a portion of the loan being made to entice the lender to extend credit to small businesses. Loan guarantees can range from 85% for loans under $150,000 to 50% for loans of $2,000,000. Under the SBA 504 program, loans can be as large as $5,000,000.

As you can imagine, any government program is going to have lots of rules. There are rules about who is eligible for financing; rules about what can be financed; rules about what interest rate can be charged—more rules than I could ever convey in this brief article. But there is no need to know every detail of the SBA program; instead, simply ask the following four questions:

  • Will the property be at least 51% owner-occupied?
  • Does the business show sufficient profits on its tax returns or projections to cover the mortgage payments? 
  • Does the buyer have good credit with no bankruptcies, arrests or judgments? 
  • Does the buyer have 10% in cash to use as a down payment? 

If the answer to all four questions is "yes”, you have a potential SBA borrower.

Finding sources of SBA financing is easy. Finding reliable sources of SBA financing takes a little more work. If you have ever heard a "horror story" about a SBA loan gone awry, chances are that loan was made by a SBA lender not well-versed in the program. Choosing an experienced SBA lender is key to your success in this market.

The Small Business Administration website,, has information on how to contact every SBA office. Staff at each office will be happy to send you a list of SBA lenders who are most active in their market. Look for lenders who fund the most loans and are part of the Preferred Lender Program (PLP). PLP Lenders are those that have been given authority by the government to make credit decisions on their behalf. These lenders are likely to be most familiar with the program and to provide your client the quickest and smoothest loan closing possible.

Some SBA lenders also have extensive websites where you or your client can enter basic information about a financing need on-line for quick feedback. Simply entering "SBA Loans" in most search engines will provide you a list of lenders with websites dedicated to SBA financing.

Once you have identified a SBA lender, open the lines of communication by calling or e-mailing him/her with leads you discover. If you find a lender unresponsive, choose another. After a few referrals, you are likely to come across some viable SBA loans, leading you to new clients and new sources of income.



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