As the credit crisis began a year ago, many industry professionals predicted that the SBA commercial loans would become much more popular as banks would become more and more conservative and seek the guarantee that the SBA provides. However that has just not been the case. It seemed to be such a “no brainer” that banks would want the government assurance in such a time of uncertainty for their commercial real estate loans.
But year to date in 2008 we’re down from 2007. And not just down from what people predicted, but down in terms of both number of loans closed and aggregate dollar amount of closed loans. Why? Is it just another symptom of the credit crisis or something else?
Interestingly the SBA seemed quite proud to announce the streamlining of their monster procedural reference book for lenders and banks at the end of 2007. With over 800 pages, and in general legalese type language it was far from user friendly. They announced the new version in the beginning of the year and it was chopped down to fewer than 300 pages. Seemingly, a major improvement.
However despite their efforts the new manual has been widely criticized and has created more confusion as to what the rules are. Many SBA lenders in fear that they might get stuck with loans that the SBA wouldn’t guarantee have shied away from the SBA programs until the issues where better resolved. Basic questions, like whose names have to be on the appraisal on a participation loan, for example, have been left unanswered. All in all, it just creates more clutter and uncertainty.
The timing on this is obviously terrible(in no fault to the folks at the SBA), as the commercial mortgage industry in general is on its knees for a reliable source of capital. Ironically, what was considered the safety net, has been weakened by this blunder.
Click here to see current commercial loan rates
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out commercial mortgage loans or restaurant loans
Tuesday, September 30, 2008
Cash Wash Loans – Now
If you own a cash wash and or are thinking of buying one, you’re going to want to make sure you’re prepared to deal with the new market realities for getting a car wash loan. Bottom line is that the property is going to have to show a good income and you as the borrower will have to accept an adjustable rate mortgage (most of the time).
As far as the cash flow is concerned the car wash will have to hit a debt coverage ratio of a 1.3 in order to be considered by the vast majority of lenders. Meaning that for every dollar of mortgage payments, the borrower will have to prove $1.30 of net income (before the mortgage) to qualify. So after the borrower pays all expenses and the proposed mortgage he will have $.30 left over. This income will have to be documented by both 3 years of tax returns (business and personal) and year to date financial statements (profit & loss and balance sheet).
Most banks and lenders that look at car washes want to take the deal through the SBA. If they’ll take a crack at it in house and go conventional, you’re often looking at a 15 or maybe a 20 year amortization schedule, which tightens the cash flow considerably. The cash flow on the property will have to be really strong to still meet the 1.3 on a 15 year amortization schedule.
So as far as the SBA is concerned your most likely (like 99% of the time) looking at an adjustable rate mortgage that’s amortized over 25 years. The program offered will be the infamous SBA 7a loan that is the most popular SBA product out there though it tends to get some bad press. The 3 biggest complaints are 1. (The obvious) that the rate is adjustable 2. The SBA fee is expensive at 2.75% 3. That the SBA process is still cumbersome, though many improvements have been made.
Overall, the borrower is going to want to make sure the deal is clean and that they do everything they can in the beginning to fix any issues (like bad credit), before they submit the file.
Click here to see current commercial loan rates
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out commercial mortgage loans or restaurant loans
As far as the cash flow is concerned the car wash will have to hit a debt coverage ratio of a 1.3 in order to be considered by the vast majority of lenders. Meaning that for every dollar of mortgage payments, the borrower will have to prove $1.30 of net income (before the mortgage) to qualify. So after the borrower pays all expenses and the proposed mortgage he will have $.30 left over. This income will have to be documented by both 3 years of tax returns (business and personal) and year to date financial statements (profit & loss and balance sheet).
Most banks and lenders that look at car washes want to take the deal through the SBA. If they’ll take a crack at it in house and go conventional, you’re often looking at a 15 or maybe a 20 year amortization schedule, which tightens the cash flow considerably. The cash flow on the property will have to be really strong to still meet the 1.3 on a 15 year amortization schedule.
So as far as the SBA is concerned your most likely (like 99% of the time) looking at an adjustable rate mortgage that’s amortized over 25 years. The program offered will be the infamous SBA 7a loan that is the most popular SBA product out there though it tends to get some bad press. The 3 biggest complaints are 1. (The obvious) that the rate is adjustable 2. The SBA fee is expensive at 2.75% 3. That the SBA process is still cumbersome, though many improvements have been made.
Overall, the borrower is going to want to make sure the deal is clean and that they do everything they can in the beginning to fix any issues (like bad credit), before they submit the file.
Click here to see current commercial loan rates
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out commercial mortgage loans or restaurant loans
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