There are many things that government does wrong, but sometimes it does things right. And when government does it right, there is a decent probability that they will fix it?and do it wrong. Such is the case of the SBA?s 504 program.
Once upon a time, if a business was paying it?s debt service as agreed, it could count on the loan being renewed when it came due, but not anymore. In February, 2011, the SBA began allowing the refinance of real estate loans for owner-occupied properties through its flagship 504 loan program. This was particularly useful because major banks, such as Wells Fargo, Bank of America, and US Bank, were abandoning entire industries. Healthy borrowers needed a place to go with their real estate loans and imbedded equity.
However, in late 2012, the SBA 504 refinance capability expired. This past week, the executive officers of the nation?s Community Development Corporations (CDCs) went to Washington to lobby Congress to extend their ability to refinance these loans for five years. The job of the CDCs is to coordinate with the SBA to finance small business real estate loans for owner-occupied properties in states where licensed.
The need is clear. More than 2,700 businesses took advantage of the program and it is hoped that over the next five years more than 250,000 new businesses would find themselves served as well. Currently, whether it?s the healthcare or furniture industry, if a loan is coming due, there is a problem?even if the business is sound. If the bank wants out of that industry, where does a borrower go to refinance the loan? What is at risk are tens of thousands of small business real estate loans that are coming due in each of the next three years.
?It does not look promising,? said David Frank, CEO of Somercor 504, the largest CDC in the greater Chicago metro area. ?Small businesses with real estate loans maturing in the next three years are in trouble. We are seeking an extension on refinances.? Frank believes the chances of doing so are dwindling. While there are challenges, ?we can still be successful,? said Frank. ?We are seeking bi-partisan support for the refinance extension.?
Mary L. Landrieu, D-LA, Chair of the Senate Committee on Small Business and Entrepreneurship, and Jeanne Shaheen D-NH, have put forth the Commercial Real Estate and Economic Development (CREED) Act which would reinstate the program finance provision for five years. The retirement of a supporter, Olympia Snowe, R-ME, raises concern about her replacement on the Committee by James E. Risch, R-ID, an unknown on this subject.
It is getting tougher for small businesses. Add the above refinancing risks to increases in payroll taxes seen on January 1, 2013, throw in increased health care-related costs ,and the result creates a big challenge. There is also the worry that businesses simply don?t know about the 504 program and that the public isn?t aware of the non-tax burden, low rates, and low risk investment.
Learn more about?Commercial Corp Finance?or read?past reports.
Source: http://www.championnews.net/blog/2013/03/13/the-meyers-report-sba-loan-changes/
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