SBA Commercial Loans – Why the Drop in Funding?

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.

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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