Commercial Bank Loans, Why Bother?

Conventional commercial bank loans are well worth the additional scrutiny. These loans offer the lowest rates, lowest fees, longest fixed periods, and longest amortization schedules currently offered in the market today, for your typical small commercial mortgages (Under $5,000,000).

The key here for borrowers to realize is that most of the banks that use to offer conventional bank loans are now sitting on the sidelines, waiting for the economy to turn around. Still other banks don’t have any capital to lend. However, there are many banks out there that are still offering conventional bank loans. They may not be local, but they are out there.

Most small local banks that are still lending are now only offering 20 year amortization schedules, with adjustable or 5 year fixed rate programs. However, there are banks that are still funding 10 year fixed rate loans on 30 year amortization schedules. For borrowers, increasing the amortization schedule to 30 years can be a substantial increase in cash flow. Simply by spreading out the repayment period, borrowers can normally get a 20% reduction in monthly payments or more.

In addition, the benefits of having a long term fixed rate in this economy are obvious. Many borrowers (and economists) are very concerned about potential inflationary pressures that might push rates to 1980 levels; as soon as the economy stabilizes and begins to grow again. Some borrowers have literally opted to refinance out of their current lower rate loan, into a higher rate, though longer fixed rate program due to these concerns.

Another major benefit to conventional commercial bank loans and the lowered fees offered. For example, government sponsored programs, such as SBA commercial loan or B and I loans typically charge an expensive 2 -3%, which is rolled into the loan amount. Commercial bank loans in comparison are normally only 1%.

Again, the important thing for borrowers to keep in mind is that there are banks out there that are still lending commercial real estate loans. Do not let yourself get discouraged. Perhaps your local banks aren’t lending, or are only offering really conservative programs, but if you take the time to research you can find viable sources.

SBA Commercial Loans – Poised For a Come Back?

Year to date we have seen 6 major national SBA lenders come back to the market. That is very encouraging news, despite all of the continued talk of the recession and how bad it might get. The fact that these leaders in the industry have the confidence to put both their necks on the line and capital, is the most important and significant statement of belief they could provide.

SBA commercial loans, including the SBA 7a and the 504 loan program have received a lot of press lately, both good and bad. On the positive side, SBA loans have been one of the most durable programs throughout the credit crisis and though down sustainably for 2008 (37%) and year to date 2009 (estimated at 50% though that is not confirmed) – SBA loans are still funding. We know this because we still are closing SBA loans.

Liken this to the CMBS market that is all but dead and was down 98% in 2008, compared to 2007... 98%... This is according to the Mortgage Bankers Association, the most reputable association in our industry.

Many people are still disappointed by the SBA performance though. After all, the SBA was created to help small business through difficult times and to get loans that they would not have otherwise been qualified for.

Borrowers need to keep in mind that the SBA does not fund loans. Rather banks/lenders fund SBA loans and they provide a guarantee to the funding bank that if the borrower defaults, the Small Business Association will pay the bank back and make them whole. However, some backs have had a difficult time getting their capital back from the SBA… Which has caused fear in upper bank management and have forced banks to further scrutinize loan requests.

Despite these concerns and the media (which continue to pound fear pound into our society), many leading experts are hopeful that we have bottomed out, and they are backing their words, with the most valuable form of confidence – their capital.

SBA Commercial Loans - Status

Via the Obama stimulus package, SBA commercial loans are in for some significant changes, so it seems. As normal however, business insiders are still waiting to see exactly how the proposed changes will actually appear on the "street".

For borrowers, the most significant change is the elimination of the of the SBA fees, which are substantial, for a period of 18 months. For example on an SBA 7a loan the fee has been set at 2.75% of the guaranteed portion of the loan, which is currently 75% of the total loan amount. So on a $1,000,000 total loan, the guaranteed portion is $750,000. The fee applies to the $750k, not the full $1 mil. The 2.75% fee in this example would equal $20,625. This fee is now going away.

The guaranteed portion of the loan has also, apparently been changed. This is in an effort to further motivate/incentives banks to begin lending again. Basically the total loan amount would be completely guaranteed, giving banks more confidence that, in case of borrower default, they would get their capital back.

As soon as we have reliable word that the changes have been made, and that banks have adopted them, we will let you know, here via this blog.