Every journey has a story. Imagine a new broker who is learning about SBA loans from his high-performing colleagues. The broker quickly realizes that the leaders in this space have carved out loan niches for themselves. Some specialize in specific industries while others focus on distinct loan purposes.

“A well-prepared borrower who has all documentation in order and a clear understanding of the steps involved can significantly streamline the process.”

Inspired by these observations, the broker decides to concentrate his efforts toward funding SBA loans in specific sectors such as hospitality and gas stations. He quickly sees the number of loans he’s completing skyrocket. The lesson is clear: Amid the variety of SBA loans, finding and mastering a niche can set a trajectory for success.

Over the years, the SBA has undergone significant transformations as the agency has adapted to the ever-changing needs of businesses and the broader economy. For brokers just learning about it, the government agency doesn’t offer direct loans. Instead, the SBA helps small businesses secure capital by guaranteeing repayment, sometimes for as much as 85% or 90% of the amount borrowed, from a bank or other lending institution.

Know the details

The SBA offers a variety of loan programs, each designed to support different business needs. The 7(a) loan program is the agency’s most common offering, with loans of up to $5 million for a range of business purposes, including working capital, expansion or equipment purchases.

The 504 loan program, available through a certified development company (CDC), is also popular, with financing tailored for major fixed-asset purchases such as real estate or large equipment. It offers long-term, fixed-rate financing of up to $5.5 million. At the other end of the spectrum, the SBA’s microloan program supports smaller businesses with loans of up to $50,000. These loans average $13,000 in size and are ideal for startups or other small companies in need of a modest capital boost.

The SBA has worked to streamline the lending process and shorten the wait times for borrowers. But myths abound. One such misconception is the time-intensive nature of an SBA loan. With the right partnerships, originating these loans can be as efficient as other traditional financing mechanisms.

“Brokers who are persistent, willing to delve deep, question the status quo and relentlessly pursue the best for their clients are the ones who truly stand out.”

The SBA process employs a tiered structure, with timelines that fluctuate based on the loan’s size, purpose and specific program being utilized. There are many nuances to the deal that can make the process speed up or slow down. For 7(a) loans, the time frame can vary significantly. Simple cases can require as little as 20 days, while complex transactions involving construction could extend beyond 90 days.

The 7(a) process encompasses three primary phases: packaging, underwriting and closing. Packaging speeds hinge on the borrower’s responsiveness and can take as little as 48 hours if documentation is promptly provided, although it usually lasts one to two weeks. Underwriting is contingent upon the deal’s complexity and takes one to two weeks on average. The closing phase can take approximately three to six weeks, although it’s not uncommon for this period to be extended due to additional third-party reports that are necessary for more intricate deals.

Throughout these stages, the borrower and broker must gather comprehensive financial data, not only for the business in question but also for any personal guarantors or associated businesses in which the borrower has a majority ownership stake. This thorough vetting process ensures a robust and transparent financial overview, which is critical for successful loan approval.

Dual-track process

The SBA 504 loan program is a dual-track process that demands synchronized efforts between a conventional lender and a certified development company (CDC). The CDC serves as the local delivery partner for the SBA loan.

As the borrower navigates through the application, the bank initiates its underwriting procedures in tandem with the CDC, which is responsible for securing SBA approval for their subordinate lien position or second trust deed. This coordination is crucial since the 504 loan is designed for the acquisition or refinancing of real estate or other significant fixed assets, thereby necessitating a layered approach to due diligence.

During this time, critical assessments such as property appraisals and environmental reports are conducted to ensure compliance with federal guidelines and to evaluate any potential risks. In addition, the process includes securing proper title documentation and insurance coverage. These steps are integral to safeguarding the interests of all parties involved in the transaction.

Typically, the entire 504 lending process from application to disbursement spans a period of 60 to 90 days. But it’s essential for mortgage brokers to communicate to clients that this timeline can be affected by the complexity of the deal and the promptness of submitting the required documentation. As such, a well-prepared borrower who has all documentation in order and a clear understanding of the steps involved can significantly streamline the process.

Watch for challenges

SBA loans are not without their challenges. For brokers wanting to originate them, it’s imperative that they go beyond a surface-level understanding and truly immerse themselves in the intricate processes that define this space. They must be responsive, organized and tenacious.

Clients are often navigating unfamiliar terrain when seeking SBA loans. Their anxieties, questions and concerns are valid. Brokers need to be responsive to their needs and ensure open channels of timely communication. In moments of uncertainty, a prompt reply or a reassuring update can make a world of difference.

The SBA loan process can be likened to piecing together a jigsaw puzzle. Each piece, whether it’s a financial document, a business plan or a property appraisal, holds significance. Brokers need to take a methodical and organized approach to ensure that no detail is overlooked. It’s all about maintaining thorough documentation, streamlined workflows and structured client interactions.

Central to a broker’s success is a systematic approach to loan origination. It starts with an in-depth understanding of the borrower’s needs. This foundation then paves the way for collecting the relevant documents and ensuring they align with the loan program’s prerequisites. But it doesn’t stop there. It’s also important to provide a thorough cash-flow analysis to evaluate the financial health of the business and discern its viability.

The SBA loan process can be complex, and brokers will find that tenacity comes in handy. Regulations evolve, client needs vary and economic climates shift. It’s a domain that demands a broker to be both knowledgeable and resilient. Brokers who are persistent, willing to delve deep, question the status quo and relentlessly pursue the best for their clients are the ones who truly stand out.

Lasting partnerships

As commercial mortgage brokers become successful, it’s easy to become focused on the allure of rate shopping. The prospects of landing the most competitive rates and the highest referral fees are enticing for any firm.

Possibly more important for long-term success, however, is relationship building. By forging lasting partnerships with lenders, brokers will find that such connections are the true cornerstones of success.

The SBA loan journey is often filled with intricate processes, meticulous documentation and constant communication. In such a scenario, the quality of the relationship with the bank can significantly influence the overall experience for both the broker and the borrower. It’s about finding lenders that offer not only competitive rates but also a collaborative spirit, a willingness to guide and a commitment to transparency.

Brokers should seek out banks that resonate with their working styles, values and goals. This alignment is about more than just transactional interactions. It’s about shared vision and mutual respect. This can lead to a smoother and quicker process. By nurturing this relationship through regular check-ins and ensuring open channels of communication, the resulting ties may lead to faster response times as well as exclusive access to special offerings.

These relationships also create a ripple effect that enhances the experience for a client, expedites their loan process, and often leads to better terms and conditions. Having a solid relationship with a bank can boost a client’s confidence in the broker’s abilities.

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In the realm of SBA lending, it’s easy to get lost in the numbers and the allure of quick wins. But it’s relationships that make the real difference. These deep-rooted connections with banks aren’t just about smooth transactions; they are the backbone of your success. Every broker can crunch numbers, but the real leaders in this space dive headfirst into the world of relationship building.

This isn’t just about sealing a deal. It’s about forging partnerships that last. To those standing at the edge of the water, don’t just dip your toes in. Dive deep, embrace the challenges and remember that with genuine relationships and a clear focus, successful SBA lending is not merely achievable but also inevitable. ●

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“This accelerated process enables mortgage brokers to cater to clients with urgent financing needs, ensuring a competitive edge in the market.”

The changes, coupled with improved turn times for loan approvals and an attractive, long-term fixed interest rate, make the CDC/504 program a game changer for commercial mortgage brokers and borrowers. For those not familiar with the SBA system, the CDC/504 loan program provides long-term financing to small businesses for the purchase, improvement or refinance of land, buildings and equipment. These commercial mortgages are administered by certified development companies (CDCs), which are nonprofit entities that are endorsed and regulated by the SBA.

Streamlined process

Beginning in May 2023, the CDC/504 program introduced streamlined and simplified affiliate rules while improving the calculation of the program’s $5 million cap. Under these new rules, ownership-based affiliation takes precedence, allowing businesses greater flexibility in access to SBA financing. Previously, the affiliation determination was based on control and identity of interest, which was sometimes challenging to determine.

Identity of interest is when relatives outside of the immediate family unit can have their ownership of similar businesses considered as affiliates. The new guideline is based solely on ownership percentage and industry, making more businesses eligible for the program and excluding some entities that previously would have counted against an applicant’s $5 million income cap.

“Brokers can now assist business owners who were previously excluded from the CDC/504 program, helping them to secure the funding they need for growth and expansion.”

This change in the affiliate rules opens new avenues for mortgage brokers to provide financing solutions to a wider range of businesses. As trusted advisers, brokers can now assist business owners who were previously excluded from the CDC/504 program, helping them to secure the funding they need for growth and expansion. The streamlined affiliate rules not only simplify the loan process but also enhance the accessibility and inclusivity of the SBA program.

Expanded eligibility

Another significant change to the CDC/504 program is the removal of SBA review requirements for franchises and management agreements. Previously, obtaining agency approval for these arrangements added complexity and delays to the loan process. Franchises and businesses with management agreements often faced additional scrutiny, making it more challenging for them to secure SBA financing.

With the removal of the review requirements, mortgage brokers can now expedite the financing process for clients involved in franchises or management agreements. This change significantly reduces the time and administrative burden associated with the SBA review, allowing for quicker turnaround times and enhanced client satisfaction. CDCs, however, still need to collect franchise and management agreements to confirm they are in effect, since they can impact cash flow.

Mortgage brokers can leverage this change to their advantage by providing swift and efficient financing solutions to clients in the franchise industry or those with management agreements. By simplifying the loan process, brokers can help these clients to promptly seize opportunities, fueling business growth and success.

More leniency

More changes to the CDC/504 program were put in place in August 2023. They refer to the elimination of character clearances and added flexibility around personal liquidity.

• Character clearances. The SBA will run a background check to determine if a borrower is currently on probation, on parole, incarcerated or under indictment. Previously, past felony convictions required applicants to pass a fingerprint check and supply past court documents.

• Personal liquidity. In the past, the SBA sometimes declined projects when there was an abundance of personal liquidity. For example, if the total project cost was $1 million and the owner had $3 million in personal liquidity, the SBA might have declined the loan request with the reasoning that the borrower could obtain conventional financing. With the changes implemented in August, there will be more leniency in these situations, assuming the project meets another “no credit elsewhere” reason such as loan-to-value ratio, property type, new business, etc.

Speedy response

In an industry where time is of the essence, the CDC/504 program has made substantial strides in reducing turn times for loan approvals. Commercial mortgage brokers can now leverage the program’s efficiency, with most approvals being finalized within two to five business days, once the complete application is sent to the SBA.

This accelerated process enables mortgage brokers to cater to clients with urgent financing needs, ensuring a competitive edge in the market. With quicker loan approvals, brokers can facilitate timely transactions, seize time-sensitive opportunities and build stronger relationships with their clients. The improved turn times contribute to increased client satisfaction while positioning brokers as reliable and efficient partners in the financing process.

Additionally, the CDC/504 program offers the ALP Express loan, which provides an expedited loan process for smaller projects. Only select CDCs in good standing are designated to participate in the Accredited Lenders Program (ALP). The ALP Express program is designed for projects of up to $1.25 million, if arranged in the typical 50% first mortgage, 40% 504 loan and 10% borrower contribution structure.

With the ALP Express loan program, the SBA only reviews loan eligibility, leaving the analysis of creditworthiness to the CDC. This streamlined approach greatly speeds up the approval and closing process, allowing mortgage brokers to provide rapid financing solutions to their clients.

Despite the recent upward trend in interest rates, the CDC/504 program stands out by offering significantly lower rates than the prevailing market. This advantageous feature gives mortgage brokers a persuasive selling point. By securing a CDC/504 loan, borrowers can benefit from long-term stability and shield themselves from potential interest rate fluctuations. Mortgage brokers can capitalize on this distinct advantage by positioning the CDC/504 loan as a financially prudent choice, attracting borrowers who seek affordable and predictable financing solutions.

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With the recent changes to the CDC/504 loan program, commercial mortgage brokers should take note of the enhanced features, improved turn times for loan approvals and highly competitive interest rates. The streamlined affiliate rules, the removal of SBA review requirements for franchises and management agreements, and faster loan approvals pave the way for brokers to expand their client base through swift, reliable financing solutions. By leveraging the CDC/504 program, mortgage brokers can strengthen their position in the market, enhance client satisfaction, and unlock new opportunities for growth and success. ●

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Many commercial mortgage brokers have seen their pipelines dry up as borrowers sit on the sidelines, showing apprehension about new financing in an uncertain economic environment. Lenders too are not immune to the consequences of market conditions, as bank and nonbank lenders alike have had to tighten program guidelines and even lay off employees due to capital concerns resulting from a lack of loan demand.

“Since guarantee fees for loans up to $1 million have been drastically reduced, there is more room for a broker to earn a fee.”

Many businesses, however, are faring well despite the economic volatility. Government loans, including the 7(a) program from the U.S. Small Business Administration (SBA), give borrowers access to sensible capital. And recent changes to this program have made SBA 7(a) lending more affordable than ever, creating opportunity for mortgage brokers to build a significant revenue stream.

Nuts and bolts

SBA 7(a) loan proceeds can be used for most business purposes, including the purchase, refinance, renovation or ground-up construction of commercial real estate. The property owner’s business must occupy at least 51% of the space, or 60% for new construction projects. These loans can also be used for non-real estate business needs such as working capital, equipment, inventory, partnership buyouts, debt consolidation, business or franchise purchases, leasehold improvements, expansions and even startup expenses.

Loan sizes for the 7(a) program usually range from $25,000 to $5 million. It is not always a requirement for real estate or hard collateral to be included. These loans are provided by SBA-approved lenders, which include many banks and a select group of nonbank lenders. The smallest SBA 7(a) loan amounts are guaranteed up to 85%, meaning that the lender is reimbursed for a large portion if the borrower defaults — assuming that the lender followed the required standard operating procedures when originating and funding the loan.

To compensate the U.S. government for providing a guarantee on SBA loans, the borrower is charged a fee on the guaranteed portion of their loan at closing. This fee can be significant and equal up to 3.75% of the guaranteed portion of the loan.

The guarantee fees charged to SBA borrowers are reasonable, however, considering the favorable loan terms they can access through the program. Guarantee fees on SBA 7(a) loans are almost always financed into the loan proceeds. The borrower won’t pay out of pocket at closing but over time as part of their ongoing principal and interest payments (which are amortized out as long as 25 years, depending on the loan size and the collateral involved).

Guarantee fee waivers

Interest rates for 7(a) loans are often adjustable to a set margin above the prime rate and adjust on a set schedule. This means that in a rising interest rate environment, a borrower who takes out a new quarterly adjustable 7(a) loan could experience an elevated cost of borrowing when compared to someone who took out a similar loan in prior years.

The combination of a higher adjustable rate and a larger guarantee fee could make a 7(a) loan cost-prohibitive to many borrowers. In October 2022, to help lessen the impact of recent interest rate hikes, the SBA implemented significant reductions to the guarantee fees that are passed on to borrowers of 7(a) loans. The changes are effective through September 2023.

For loans with maturities that exceed 12 months, these changes include:

• For loans of $500,000 or less, the SBA removed the guarantee fee altogether. There was a previous upfront fee waiver on loans of $350,000 or less.
• For loan sizes up to $700,000, the fee was reduced from 2.77% of the guaranteed portion of the loan to 0.55%.
• For loan sizes up to $1 million, the fee was trimmed from 3.27% of the guaranteed portion of the loan to 1.05%.

Prior to these recent changes, a borrower taking out a 7(a) loan for $500,000 would have been charged a guarantee fee of $10,387.50. That same borrower will now be charged nothing. A borrower who previously took out a $1 million loan would have been charged a fee of $24,525. Under the new structure, however, they’ll owe $7,875 — good for savings of $16,650.

Additionally, borrowers who work with a direct SBA lender can now receive financing up to $500,000 without being charged any additional guarantee or origination fees. Direct SBA lenders may charge an origination fee of up to $2,500, but charges above that amount are uncommon.

Brokerage fees

The recent SBA fee waivers have also created a great opportunity for commercial mortgage brokers to earn more significant income on SBA 7(a) loans. Prior to the recent guarantee fee reduction, it was difficult for an SBA loan broker or intermediary to charge additional fees to the borrower. It would often become prohibitive for the borrower to proceed with the financing, given the already sizable SBA guarantee fee.

Now, since guarantee fees for loans up to $1 million have been drastically reduced, there is more room for a broker to earn a fee. Many SBA lenders will pay the referring or originating broker a fee that is priced into the loan’s interest rate. This fee (depending on the lender you work with) can range from 0.5% all the way up to 3% for experienced and high-volume SBA intermediaries. Any broker looking to earn a fee from the borrower — in addition to the fee they’re earning from the lender — should first confirm whether this is acceptable to the lender.

Any fees charged are legally required to be disclosed to the borrower on SBA Form 159. The lender will require this document to be completed and signed by the broker and borrower prior to closing, and it will be submitted to the SBA after closing. Charging a fee to an SBA borrower without reporting it can result in financial penalties and, in some cases, criminal prosecution.

Changes on horizon

Since last year’s policy change, the SBA has been working to update its standard operating procedures. This is designed to make its financing accessible and affordable to even more borrowers.

Some of the changes being considered include allowing more nonbank lenders to participate in the SBA lending program. This number is currently capped at 14. Additionally, the agency is looking at updates to business affiliation rules that would make it easier for larger and/or more complexly structured companies to qualify.

Earlier this year, potential revisions to standard operating procedures were being reviewed by the federal government, and all of the proposed rule changes have not yet been finalized. Nonetheless, borrowers can still take advantage of the guarantee fee waivers currently in place to better access growth capital and offset rising interest rates. And mortgage brokers can leverage the recent changes to earn sizable fees while still giving their clients access to affordable and flexible small-business financing. ●

The post The SBA’s Win-Win Proposition appeared first on Scotsman Guide.

Expanded access

Advanced planning

Updates and changes

• 0% for loans of $500,000 or less
• 0.55% for the guaranteed portion of loans of $700,000 or less
• 1.05% for the guaranteed portion of loans of $1 million or less
• 3.5% for the guaranteed portion up to $1 million, plus 3.75% of the guaranteed portion of any remaining amount up to $5 million

For loans with a maturity of 12 months or less, the upfront fees are:

• 0% for loans of $500,000 or less
• 0.25% for the guaranteed portion of any loan amount up to $5 million

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For Express loan sizes of less than $350,000, the SBA does not require that the lender underwrite financial statements or tax returns.

Smaller and faster

Extensive rules

Experienced lenders

• A business credit score that is 700 or higher
• An operating history of at least two years
• Filing of all required tax returns
• No history of late payments, defaults, bankruptcies or foreclosures

The post Funding In A Flash appeared first on Scotsman Guide.

The loans that most often languish in underwriting and closing for weeks or months are those that, from the beginning of the process, ride the line of eligibility or don’t quite fit in the credit box for a given SBA lender.

Loan qualifications

Liens and encumbrances

Agreements and forms

Other potential problems

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The CDC/504 refinance program, which was up-dated in July 2021, allows small-business owners to free up equity in their properties while reducing loan payments.

Express advantage

Wide eligibility

Refinance relief

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The CDC/504 program is a lending solution for business owners to buy, expand or refinance major fixed assets such as commercial real estate or equipment.

Low interest rates

Low downpayments

The CDC difference

Extensive eligibility

The post Finding Value in the Right Program appeared first on Scotsman Guide.

Program basics

Every small business comes with its own unique story, and without understanding this story, it’s impossible to accurately process certain information.

The right lender

Factors to consider

Credit and liquidity

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Commercial mortgage brokers should take a close look at this program when looking for ways to help their small-business clients. Recent enhancements to the program have essentially handed money to entrepreneurs willing to start businesses, save jobs and acquire real estate. 

Small businesses are the lifeblood of our economy, accounting for about half of all private-sector jobs in the U.S. When small businesses close or lay off employees, the effects ripple throughout the economy. This once-in-a-century pandemic has been especially challenging for small businesses. These companies typically don’t have a strong enough balance sheet to weather the stifled demand and lower customer-traffic counts that too many have experienced due to rolling shutdowns and social distancing.

After the initial shutdowns in March 2020, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act and created the Paycheck Protection Program (PPP), which basically provided loans to small businesses in amounts up to 250% of their monthly payroll expenses, not to exceed $2 million, and later to be forgiven if they followed certain guidelines.

Congress passed a second draw for the PPP in December of last year, which was aimed at helping small businesses that experienced a 25% decline in revenue. Needless to say, this was too late for some businesses and, predictably, a job-loss number of 140,000 occurred that month. 

As we work toward reaching the other side of this pandemic, the U.S. must focus on further stimulating the economy and creating jobs. One of the major levers that Congress has to assist in this effort is through the SBA and its capital-access programs, primarily the flagship 7(a) loan.

Adding rocket fuel

In fiscal year 2019, the SBA approved more than 58,000 loans through its 7(a) and 504 loan programs, injecting more than $28 billion into small businesses, the agency reported. This supported about 550,000 jobs nationwide. 

It’s clear from these numbers that thousands of small-business owners rely on the agency for affordable capital. The 7(a) program allows small businesses to borrow up to $5 million for business and commercial real estate acquisitions, partner buyouts, equipment, inventory, leasehold improvements and permanent working capital.

The SBA’s programs are meant for those who don’t have access to conventional financing with reasonable terms. The 7(a) loan offers some of the longest amortizations and lowest equity-injection requirements in the marketplace. It’s also free of any balloon notes and loan covenants, providing small-business owners with a level of certainty that is hard to find elsewhere. 

There are three major enhancements that have energized the 7(a) program for all new loans approved between Feb. 1 and Sept. 30, 2021. First, the federal government has increased its loan amount guarantee. The SBA doesn’t fund these loans; banks and 14 nonbank lenders do. The SBA provides the lender with a guarantee that it will subsidize a portion of the lender’s losses in cases of default.

The guaranteed percentage is generally 75%. In the recent legislation, however, Congress increased it to 90%, significantly reducing a lender’s exposure. This will allow lenders to make loans to small businesses that they otherwise wouldn’t have.

Second, the government has temporarily waived the SBA guarantee fee. Historically, the 7(a) loan has been a zero-subsidy program that was paid through borrower and lender fees. This waiver translates into significant savings. The borrower’s guarantee fee on a $1 million loan is typically about $26,000. It’s calculated as a percentage of the guaranteed portion of the loan on a tiered basis. For a $5 million loan with a 75% guarantee, the fee would be closer to $140,000.

Lastly, borrowers can now qualify for three months of payment relief for new loans approved between Feb. 1 and Sept. 30, 2021. On Feb. 16 of this year, the SBA adjusted its original guidance. Initially, all new 7(a) loans were scheduled to receive six months of relief. The revised benefit, however, is still substantial. The first three SBA loan payments will be paid by the federal government with a cap of $9,000 per month. 

For example, on a 10-year, $1 million loan, these enhancements equate to more than $50,000 in incentives (which is a fancy word for “free money”). Savvy entrepreneurs will see this and recognize that now is the time to act. Why? Three words — return on investment.

Congress has created SBA 7(a) loan enhancements to incentivize folks with cash who are sitting on the sidelines.

Blasting off

Entrepreneurship boils down to return on investment. “Cash management” is another way to phrase it. Cash is a precious commodity to a small-business owner. Each day, they must determine where to invest their dollars to achieve the highest return. Do they buy more inventory or hire a new employee? Do they invest in a new software system or buy a new piece of equipment?

Small-business owners and aspiring entrepreneurs alike have been told for the past 12 months to add liquidity as we brace for unprecedented uncertainty. Now that we’re deep into the pandemic and the election year is behind us, the outlook appears more certain for the small businesses that made it through. Congress has created SBA 7(a) loan enhancements to incentivize folks with cash who are sitting on the sidelines. They can invest in growing their business, thereby creating more jobs and stimulating the economy.

Entrepreneurs can put their capital to work with an SBA 7(a) loan in three major ways. First, they can use the funds to acquire an existing business. Acquisitions are on the rise as more baby boomers retire and sell their businesses, and the pandemic has only sped up this progression. 

Second, a 7(a) loan can cover up to 90% of the acquisition costs of an existing business plus working capital to cover expenses during the transitionary months. An acquisition not only retains a company’s existing jobs but can create new ones. Sellers often get burned out toward the end of their journey. When a spry buyer comes along, they are likely to inject some fresh blood into the business and add new positions.

Needless to stay, starting a business is the quickest way to add new jobs and spur the economy, but entrepreneurs sometimes opt to open a franchise as a less risky alternative. A third option for a 7(a) loan can be to finance up to 90% of the total cost to open a franchise while providing working capital for the ramp-up period.

With the potential end to the pandemic in sight, it’s time for businesses to shift their focus from merely surviving to becoming a thriving part of their community.

Taking charge 

These loans are a tool that a small business can use to achieve greater financial security. Owning the real estate that houses the business is the smartest move a small-business owner can make. It often becomes the cornerstone of their nest egg and puts them in control of their physical location. The 7(a) loan can only be used for owner-occupied purchases.

The 7(a) loan is intended for businesses occupying the space, but the properties can still generate rental income for the owner. As long as the business plans to occupy at least 51% of the square footage, an SBA loan can be used to purchase real estate and make improvements. 

These enhancements should allow the business owner to stretch a little further and buy something that they can grow into. Best of all, SBA 7(a) loan proceeds can be used for equipment, inventory and working capital so that the business has the necessary cash to capitalize on the additional space.

There has never been a better time to pursue this option. If approved by Sept. 30, 2021, the SBA will waive the guarantee fee and cover the first three payments. The federal government is essentially paying small businesses to make investments into the economy.

The Federal Reserve also is playing an important role in keeping interest rates near historic lows, and Fed policymakers signaled that benchmark rates will remain near zero through 2023. This provided much-needed relief to borrowers early on in the pandemic and makes new loans even more affordable for small-business borrowers.

The year 2020 challenged small-business owners like no one could have imagined and many of them had to fight hard to survive. Businesses had to reduce their expenses while innovating and adapting to ever-changing situations. 

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With the potential end to the pandemic in sight, it’s time for businesses to shift their focus from merely surviving to becoming a thriving part of their community. Now is the time for lenders and small-business owners, with the aid of commercial mortgage brokers, to step up to Congress’ call to action and help get the pistons of America’s engine back into motion. ●

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