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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   February 2005

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, subprime, high LTV, construction, etc. But 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 occasionally comes across such opportunities. Having contacts in this market allows you to win and retain customers who will come back to you for their next real estate financing needs because of your demonstrated broad knowledge of the real estate industry.

In order to effectively place owner-occupied properties, every commercial mortgage broker should become familiar with Small Business Association (SBA) loans. SBA 7(a) loans are extended by a bank or licensed non-bank lender to a small business owner. The 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 percent for loans less than $150,000 to 75 percent for loans from $151,000 to $2,000,000. Under the SBA 504 program, loans can be as large as $10,000,000.

As you can imagine, any govern­ment program is going to have a lot of rules—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. 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 percent 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 percent 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 an SBA loan gone awry, chances are that the loan was made by an SBA lender who was not well-versed in the program. In this market, choosing an experienced SBA lender is the key to your success.

The Small Business Administration Web site (www.sba.gov) 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 its 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 Web sites where you or your client can enter basic information online about a financing need for quick feed­back. Simply entering “SBA loans” in most search engines will provide you with a list of lenders who have Web sites dedicated to SBA financing.

Once you have identified an SBA lender, open the lines of communica­tion by calling or e-mailing them 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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