Wednesday, July 18 , 2018, 9:17 pm | Fair 66º



Mark Mattingly: SBA Lending Program Expanded to Benefit More Buyers

SBA 504 loans are worth consideration by business owners before extending or entering a lease

The federal government recently expanded its Small Business Administration loan program, increasing the total loan size available and covering more and larger businesses. This is great news for the commercial real estate sector, as it offers the most attractive loan terms seen in years, and fills a troubling gap in the commercial lending market, which has yet to rebound from the financial crisis.

Mark Mattingly
Mark Mattingly

Companies that have been forced to lease their facilities because of the high cost of properties, and the prohibitive barriers to financing — in particular the typical requirement for 30 percent to 40 percent down payments — the SBA program offers a means to transition to property ownership rather than tenancy.

This is a short summary of the terms and advantages of the SBA 504 financing program. Business owners who occupy at least 51 percent of their property can qualify for an SBA 504 loan.

The SBA 504 loan program leverages bank financing through a monthly pooling process that provides America’s small businesses the type of access to capital normally available only to large corporations. The bank provides a first mortgage loan typically for 50 percent of the project cost, and the SBA provides a second mortgage typically for 40 percent of the project cost.

The SBA 504 second mortgages are pooled and sold through the private capital markets to institutional investors. Those investors are guaranteed by the SBA. Through this process, the small business is able to obtain a below-market interest rate and up to 90 percent financing for commercial real estate acquisition. The SBA 504 loans are originated through a Certified Development Corporation (CDC) that is licensed by the SBA to originate, close and service the loans. CDCs work hand in hand with the first mortgage lender to assist the small-business owner in access to financing.

The example below shows the rate and term of a recently funded project:

» Bank of America (first), 25-year amortization due in 20 at 4.3 percent fixed interest rate for seven years

» SBA 504 (second), 20 years fully amortized at 5.09 percent fixed for 20 years

That’s a blended interest rate of about 4.7 percent.

In my 30 years as a commercial real estate broker, I have never seen a loan program and interest rates as attractive as this. Combined with depressed asset valuations (prices), this is an exceptional opportunity. Any business owner should seriously consider this before extending or entering into a lease for his or her company.

Our analysis clearly demonstrates that utilizing the SBA 504 program results in occupancy cost lower than current market lease rates. Combined with the tax advantages of real property ownership, including the deductibility of mortgage interest, depreciation expense and traditional asset appreciation, makes this a once-in-a-lifetime opportunity.

You can learn more by contacting us at Pacifica Commercial Realty. We will be happy to introduce you to the lending experts who make this program easily understood and accessible to your company.

— Mark Mattingly is executive vice president of Pacifica Commercial Realty.

Support Noozhawk Today

You are an important ally in our mission to deliver clear, objective, high-quality professional news reporting for Santa Barbara, Goleta and the rest of Santa Barbara County. Join the Hawks Club today to help keep Noozhawk soaring.

We offer four membership levels: $5 a month, $10 a month, $25 a month or $1 a week. Payments can be made through Stripe below, or click here for information on recurring credit-card payments and a mailing address for checks.

Thank you for your vital support.

Become a Noozhawk Supporter

First name
Last name
Enter your email
Select your membership level

Payment Information

You are purchasing:

Payment Method

Pay by Credit Card:

Mastercard, Visa, American Express, Discover
One click only, please!

Pay with Apple Pay or Google Pay:

Noozhawk partners with Stripe to provide secure invoicing and payments processing.

  • Ask
  • Vote
  • Investigate
  • Answer

Noozhawk Asks: What’s Your Question?

Welcome to Noozhawk Asks, a new feature in which you ask the questions, you help decide what Noozhawk investigates, and you work with us to find the answers.

Here’s how it works: You share your questions with us in the nearby box. In some cases, we may work with you to find the answers. In others, we may ask you to vote on your top choices to help us narrow the scope. And we’ll be regularly asking you for your feedback on a specific issue or topic.

We also expect to work together with the reader who asked the winning questions to find the answer together. Noozhawk’s objective is to come at questions from a place of curiosity and openness, and we believe a transparent collaboration is the key to achieve it.

The results of our investigation will be published here in this Noozhawk Asks section. Once or twice a month, we plan to do a review of what was asked and answered.

Thanks for asking!

Click Here to Get Started >

Reader Comments

Noozhawk is no longer accepting reader comments on our articles. Click here for the announcement. Readers are instead invited to submit letters to the editor by emailing them to [email protected]. Please provide your full name and community, as well as contact information for verification purposes only.

Daily Noozhawk

Subscribe to Noozhawk's A.M. Report, our free e-Bulletin sent out every day at 4:15 a.m. with Noozhawk's top stories, hand-picked by the editors.

Sign Up Now >

Meet Your Realtor Sponsored by Village Properties

Photo of Elizabeth Wagner
Elizabeth Wagner
"I consider myself to be an up front and honest agent and willing to talk my clients out of purchasing a property that isn’t right for them or won’t meet their needs in a year or two."

Full Profile >