SBA approves record number of loans designed to help business owners


At a time when small businesses across the country are struggling to stay afloat, some business owners are investing in business growth by expanding their facilities or buying equipment. In fact, a record number may be, according to some very recent loan data.

Katherine Culhane, Associate Director for the Florida SBDC

Katherine Culhane has an extensive career in banking, including roles in management, business development, commercial lending and private banking. She has a master’s degree in organizational learning and leadership, is a certified professional behavioral analyst and is a Society for Human Resource Management senior certified professional. With more than 25 years of banking experience, Culhane serves as the capital access specialist for the Florida SBDC at IRSC. Contact her for more information on this and all SBA lending programs to help your business expand, grow and succeed.

With Small Business Administration 504 loans, businesses are able to purchase land, buildings, or other major assets such as large equipment. Besides low interest rates and long payback periods, what makes them attractive to small business owners is that they are typically only required to put 10% down.

Here’s the news: The SBA completed a record number of loans under its 504 loan programs in the past month — the highest monthly total in the 504 loan’s 34-year history. In the past month, the SBA approved a total of 1,462 loans amounting to $1,284,274,000.

That is more than double the previous monthly funding record set in September 2012. For context, the SBA issued 6,000 504 loans totaling $4.9 billion during the entire 2019 fiscal year.

The increased volume comes as interest rates for loans are at historic lows. In fact, in August, the SBA reduced rates on 20-year 504 loans to 2.214% while loans with terms of 25 years now carry a rate of 2.269%. The 25-year option was only introduced in April 2018, joining the 10- and 20-year programs.

The timing of this surge in 504 lending makes sense given the low interest rates. Or it may be a signal of recovery for certain small business segments. Regardless, it’s certainly good news for small businesses and the economy at large.

Treasure Coast Business Magazine talked to Debbie Petrell, senior vice president, sales and marketing manager with Florida First Capital Finance Corp., about ways the 504 loan program may be a good source for growth capital for your small business. Florida First Capital is a certified development company, a not-for-profit agent for the SBA for the Florida 504 programs and is one of the most active CDCs in the state and country.

“In FY 2019- 2020, Florida First Capital became the largest CDC in the country assisting more than 350 small businesses with projects totally over $900M,” Petrell said.

The SBA offers a variety of small business loan programs, from business acquisition to export working capital. But the 504 program is specifically for the acquisition of owner occupied commercial real estate as well as industrial equipment.

The way 504 loans are typically structured is that lending institutions are the first mortgage holder and provide 50% of the financing; the SBA, with Florida First Capital, headquartered in Tallahassee, finances up to 40% at below market rates, and the small business owner injects 10%.

Banks like to make the loans because they reduce their risk and small businesses preserve precious growth capital because they put in 10% rather than the typical 20%. Another advantage is you are mitigating interest rate because up to 40% of your loan is fixed for up to 25 years at the current below market rates, and moreover, the first mortgage lender, unlike conventional lending, cannot balloon the first mortgage before 10 years, which again mitigates the risk of refinance, according to Petrell.

Who qualifies? The loans typically are available to for-profit, credit worthy businesses with a tangible net worth of not more than $15 million and average net income after taxes for the preceding two fiscal years of not more than $5 million.

Use the funds: For real estate loans, funds can be used for the acquisition of land and existing buildings; expansion and renovation, including parking lots and landscaping; machinery; long-life fixed machinery and equipment. A 504 loan cannot be used for working capital or inventory, goodwill assets, business stock acquisition or franchise fees.

Project size: For real estate loans, the SBA portion is capped at $5 million but there is no limit on project size. The limits are higher for green energy — for projects that meet the energy efficiency public policy. For manufacturers, the SBA cap is $5.5 million per eligible project.

Terms: below market, fixed interest rates with 10-, 20- and 25-year terms.

“The objective of the 504 is economic development and job creation. There are situations where the borrower has the 20% to go with conventional [financing] but injecting all that capital would restrict them from future growth and hiring,” Petrell said. “It’s important to give the small business owner the option of the SBA loan.”

This article is provided by the Florida SBDC at IRSC, the Small Business Development Center within Indian River State College’s School of Business. The center’s team of business experts works one-on-one with hundreds of entrepreneurs and business owners each year by providing confidential, no-cost consulting. The center’s mission is to help Treasure Coast businesses grow and succeed.

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