TOP 10 FINANCING Blog

The August bond sale to investors that funds Small Business Adminstration (SBA) loans was sold at a rate of 3.52%, which resulted in an effective interest rate for the SBA second mortgage part of the 504 loan – including fees – of only 4.93%, one of the lowest since the program began in 1986. The SBA’s 504 loan program has funded nearly $60 billion in loans to growing small businesses over the past 24 years. Right now, the interest rates are low and one of the best aspects of an SBA 504 loan is the low down payment -- typically only 10% -- required by a borrower. Certified Development Companies (CDCs), SBA’s lending partners, are busy helping small business borrowers who are taking advantage of these record low interest rates to purchase, build, or expand their own facilities.

Recent loan data has shown that a large percentage of SBA 504 borrowers are professional practices. The greatest concentration of loans has been to physicians, dentists, veterinarians, lawyers and accountants. Chris Crawford, NADCO* President (the trade association for the nation's CDCs), observed, "It's not surprising that accountants and lawyers recognize the benefits of SBA 504 loans, but it's gratifying to see so many other professionals also realizing that owning their own building to fix their business occupancy costs is a very savvy financial move. More business owners would be wise to make similar investments."

*This story contains material from the National Association of Development Companies (NADCO).

Since its inception in 1963, the President of the United States has proclaimed National Small Business Week to recognize the contributions of small businesses to the economic well-being of America. As part of National Small Business Week, the U.S. Small Business Administration recognizes this special impact made by outstanding entrepreneurs and small business owners. In 2010, National Small Business Week will honor the estimated 27.2 million small businesses in America. Small businesses are major contributors to the strength of the American economy. More than half of Americans either own or work for a small business. They also create 60-80 percent of new jobs in the country. Small businesses drive innovation, create 21st century jobs and increase U.S. competitiveness. RESOURCE *http://www.nationalsmallbusinessweek.com/

More than 100 small business owners will be recognized for their involvement in government contracting, and their support for small businesses and entrepreneurship. The five major award events will be presented to SBA partners in financial, entrepreneurial development, best SCORE Chapter, Small Business Development Center and Women's Business Center during 2009. The highlight of the conference will be the announcement of one entrepreneur who will be named National Small Business Person of the Year.

Small businesses drive the strength of the American economy. Over half of Americans either own or work for a small business. They also create 60-80 percent of new jobs in the country. Small businesses contribute innovation, create 21st century jobs and increase U.S. competitiveness.

With the new Small Business Administration’s standard operating procedures, several changes have been instituted in the debt refinance realm including changes to seller debt refinancing, credit card refinancing and long term debt refinancing.

• Seller debt may be refinanced with an SBA 7(a) loan if the seller debt has been in place for at least 24 months following a change of ownership and the seller debt has been paid in a timely manner for the previous 24 months. The seller debt must be supported by a current business valuation. If the business valuation was completed within the last 36 months, a new valuation does not have to be obtained; however, if no business valuation was obtained with the original seller financing, the lender must request a business valuation.
• Any credit card debt that is refinanced must have been used for business related purposes. More specifically,
• If the credit card is in the business name, the lender is required to confirm that the card is in the business name and the borrower must certify that the debt being refinanced was for business purposes.
• If the credit card is in the personal name of the borrower, the lender is required to obtain supporting documentation (via monthly statements itemizing the charges and receipts supporting the charges) for all charges over $100. The borrower must also certify that the charges were for business purposes.
• If long-term debt is being refinanced, the new monthly installment amount must be at least 10% less than the existing installment amount. If the loan has a balloon or demand feature associated with it, the 10% improvement rule does not apply.

Late in 2009, Small Business Adminstration (SBA) made wide sweeping changes to the processing rules on SBA 7(a) loans known as its Standard Operating Procedures (SOP). The SOP modifications involved change of ownership financing, debt refinance transactions, collateral requirements, appraisal requirements as well as many others.

When financing a change of business ownership, often there is goodwill included in the purchase price. SBA's new policy defines intangible assets as goodwill, client/customer lists, patents, copyrights, trademarks and non-compete agreements. The policy gives specific guidelines to follow when financing intangible assets:

• If the purchase price includes intangible assets in excess of $500,000, the borrower and/or seller must provide an equity injection of at least 25% of the purchase price of the business. Any portion of the seller’s equity used to meet the 25% threshold must be placed on full stand-by (no payments of principal or interest) for a minimum of the first two years.
• If the purchase price of the business is less than $500,000, this equity injection requirement does not apply.
• The Lender must obtain a current business valuation (dated within 36 months of closing). The valuation must be requested by and prepared for the Lender.

On Tuesday night the President signed into law a temporary 30-day extension of the SBA Recovery Act provisions with a $60 million appropriation. The 30-day extension provides increased government guarantees and the elimination of fees on small business loans.

"The bill passed by the Senate helps small businesses get loans so they can grow and hire”, President Obama said. "I'm grateful to the members of the Senate on both sides of the aisle who worked to end this roadblock to relief for America's working families."

SOURCE The White House
http://www.whitehouse.gov/the-press-office/statement-president-obama-signing-ui-extension-bill

Regardless of whether you own a ten-unit apartment complex or you have multiple office properties with thousands of tenants, the decision regarding which property management company to use will be one of the most important investment decision you will ever make regarding you real estate asset. Over 25,000 property management companies available to choose from in the United States alone and several trillion dollars of real estate assets are being managed by property management companies. Therefore, selecting the right property management company should include a detailed step-by-step process that incorporates a checklist of important questions to ask. Mark Ziemba at SS&C Technologies, Inc. suggests the following list of questions to use as a basis for choosing a company to manage your properties:

• How many years has the property management company been in business?
• What is the property management company's reputation in the industry?
• What types of properties does the property management company specialize in managing?
• Who are their existing clients and how successful are those clients? Will those clients provide references? Can you meet with those client companies?
• What is the retention rate of their staff? How many on the staff? Can they provide an organizational chart?
• What type of automated property management accounting and reporting system do they use?
• Does the property management company carry sufficient insurance or do they have a fidelity bond?

Begin the process of selecting a property manager by contacting prospective companies by phone or email and asking if they are interested in managing your properties. Some companies may not be interested because of the property location or type of real estate and some companies may not want to take on any new business. From those that express an interest, request a written “menu” of services they provide, spending limits, reports provided and management fees. If the details of the summary seem reasonable, the next step is to personally visit the management company’s office. It is important to make certain that their own offices are clean and organized (for example, it's not a good sign if they can't even manage their own office). Meet with the property manager and accounting personnel that would be assigned to your properties. Once you are satisfied with your overall impression of the property management company, begin the process of getting detailed answers to the above checklist of items.

On December 19, 2009, President Obama signed the U.S. Department of Defense (DOD) appropriations bill, which includes $125 million to temporarily extend funding for two popular stimulus provisions. The provisions, which increase the SBA 7(a) guarantee to 90 percent and waive the SBA fees on most SBA 7(a) and 504 loans, were originally established as part of the Recovery Act in February 2009. The SBA estimates that these additional funds will support $4.5 billion in small business lending.

KEY POINTS TO KNOW

• The DOD bill temporarily restores the SBA 7(a) guarantee to 90 percent through February 28, 2010.
• The DOD bill reinstates the SBA fee reduction for most SBA 7(a) and 504 loans. The fee relief will be in effect until the additional funds are exhausted or the end of the fiscal year, whichever comes first.
• There is another bill currently in legislation that would extend additional funding for these provisions through September 2010, the House's Jobs for Main Street Act. This bill is proposed to go through sometime in January 2010.