NADCO: SBA 504 Loan Approvals Surged in 2011’s First Fiscal Quarter
Posted March 1, 2011
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The SBA 504 loan program, which provides small businesses with long-term, fixed rate, government-guaranteed loans for the purchase, construction and renovation of commercial real estate, saw a surge in loan approvals in the first quarter of 2011.
The first fiscal quarter of 2011, which ended December 31, 2010, saw a 20 percent increase in the value of loans approved, the second consecutive quarterly increase of 13 percent or more.
In addition, the more than 2,300 loan approvals in the first fiscal quarter represented the most loan approvals in the first quarter in the last 10 years, and an increase of 13 percent from last quarter in 2010.
These figures are derived from reports from McLean, vA-based National Association of Development Companies (NADCO) based on U.S. Small Business Administration data.
Christopher L. Crawford, president and chief executive officer, NADCO, attributes the increase in activity to small business optimism and the Small Business Jobs and Credit Act of 2010, enacted in September 2010. Under the new law, the amount of the guaranteed loan that can be made by a Certified Development Company (CDC) increased to $5.5 million from $4.0 million and the net worth requirements of the borrowing company expanded to $15.0 million from $8.5 million. The new law also opened the door for SBA 504 loans to be temporarily used for loan refinancing.
According to Crawford, the regulations for using SBA 504 loans to refinance existing debt just approved in the Small Business Jobs Act are expected to give the overall program another huge boost. Loan approvals can be expected to increase at least ten percent through the balance of the fiscal year due to refinancing by small businesses. He expects that number may increase as much as 15 to 30 percent in 2012 when the program will be in effect for the entire year until its conclusion in September 2012.
In a traditional SBA 504 loan, a bank provides the first mortgage at 50 percent of the eligible financing, a Certified Development Company (CDC) provides a second mortgage equal to 40 percent of the eligible financing, and the borrower puts 10 percent down. Conventional lending often calls for 25 to 35 percent down in this market (if not more), so the out-of-pocket savings is significant.
"You can't find a bank that will loan at a 20-year fixed rate on commercial real estate with only 10 percent down," Crawford said. "We are the best long term credit program today."
Highlights of the first quarter activity report, which is based on statistics provided by the SBA, include:
- During the first fiscal quarter more than 2,300 SBA 504 loans were approved;
- The total value of loans approved was almost $1.4 billion and the average loan value was $579,200;
- On all measures, the totals achieved during the first fiscal quarter exceeded the 10-year average level of activity (1,862 transactions, $1.0 billion in value and $541,300 average loan value)
- More than 21 percent of the 4,600 approved loans during the quarter were in five of the most populous states-California, Florida, Texas, Illinois and Ohio;
NADCO is the trade association for the nation's Certified Development Companies (CDCs). Its members are non-profit organizations that have been certified by the U.S. Small Business Administration (SBA) to provide financing to small businesses through the SBA 504 loan program.
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