By Rieva Lesonsky
Is your small business facing foreclosure on a commercial property? Many entrepreneurs have found themselves in this boat recently as refinancing became more difficult in the recession. And because commercial mortgages typically come due in just five years, many analysts have warned that the country is soon due for a wave of commercial real estate foreclosures as loans come due on properties whose values have tanked.
However, adjustments to the Small Business Administration (SBA’s) lending programs that were made as part of the Small Business Jobs and Credit Act of 2010, which passed in September, may soon offer some help for struggling commercial property owners.
The Minneapolis StarTribune recently reported on how changes made as part of the new law, which passed in September, will strengthen community banks by increasing SBA loan limits, temporarily extending government guarantees and cutting fees. The goal is to encourage lending to small businesses by making it less risky for the banks.
What will affect commercial real estate, however, is a change to the SBA’s 504 Certified Development Company loans. Currently, these loans can be used to finance the purchase of real estate and other fixed assets. Under the new law, small business owners will be able to use these low-interest, government-guaranteed loans to refinance their existing commercial mortgages. This was never allowed before.
The program will allow approved SBA lenders that are already helping small businesses finance long-term investments such as real estate and equipment to refinance customers’ existing mortgages with the same structure that can currently only be used for new loans: a 50 percent private first mortgage plus with a 40 percent SBA-guaranteed debenture and 10 percent borrower equity.
Obviously, there are some restrictions, and the regulations and details of the new provisions haven’t been finalized yet. But once they are, banks will be able to refinance commercial properties using 504 loans for the next two years. And for many entrepreneurs struggling with their commercial properties, this could offer a lifeline.
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