The Rules Have Changed - Expectations Have Not

The money lending rules have changed.
Businesses'/People's expectations have not.

Banks will not lend money for business purposes unless the borrower is a financially strong owner user.

There are alternative sources of money available from private and non-depository lenders. These sources have money available and make money only by lending money BUT their underwriting is strict and their fees are perceived to be high.

The fact is that their fees are no higher than regular banks. They do not hide their fees like banks do.

These lenders can refinance and do not require or want the operating account. Banks do not want the loans but want the operating accounts.

Some loans available in this market are as follows

SBA back loans - Banks offer these loans often as a last resort and more often than not do not know how to handle them. These loans have true 20 year amortization w/no call. For Owner - Users.

Interest only - 3-5 years 6%-7% interest. Up front fees 4%-5% 75%-80% LTV

Interest only - SECOND POSITION - 3-5 years - interest rates 12%-14% - fees 4%-6%

Bank type loan - 20-30 yr amortization - 3-5 year call 6%-7% interest Fees 2%

Rather than think banks are going to "come around" realize that it will be along time, if ever, things will be as they used to be and look into the new sources of funding your business and projects.

Hold her on the road

It has been a while since my last blog. The reason is that there are not too many positive things in the commercial real estate world to write about. Banks are taking loan prospects to the church door and dumping them.
Some times it is difficult to understand this. The reason must be that banks do not want to come right out and say no. They think it is better to blame a refusal on an often fabricated finish line trip by the prospective borrower than to admit that they are not lending. In many cases the Fed will not allow them to make or renew certain loans. Bankers blame this on the Fed not on their flimsy underwriting during the hay day.
The difficult thing about these times is that there does not seem to be the spark necessary to make people feel good. During past difficult times there was always the work ethic. If you worked hard and smart enough you could get back on the road. Things are different now and the reward of hard work often seems to be spinning wheels.
Things will get a lot better in the future. The population is expanding. The good thing about the week dollar is that our manufacturing sector is cranking. It seems that the politicians really get it and that a plan to work out the deficit will evolve.
If we do feel a little down, all we have to do is read the newspapers or check out the news on TV to realize our good fortune.
It is difficult to determine whether or not getting up at 4AM to see a royal wedding is a good or bad sign.

Realty Check

In the last few years commercial property values have decreased by as much as 60%. Remember that appraisals in 2005/06 were done at the height of the one of the hottest commercial real estate markets of all times.

Commercial real estate values are based on the economic value to the purchaser. Will market rents provide me with the returns I want? Will the price of this land and construction costs allow me to rent or sell at a profit commensurate with my profit objectives and with the risk of development?

Also, many appraisals done in 2005/06, were up dated several years later before the decreases in values were understood. Many of these updated appraisals did not reflect the decreases in value - true market value. Individual owners and banks continued and still do carry these properties at "old" inflated values.

Investors are not willing to pay these inflated prices and lenders are not willing to finance them. Investors cannot get the return they need. Lenders do not want or need more non-performing loans.

POINT - If you want to sell your property, be aware of the current market conditions. Do not be offended if your property which was appraised in 2006 for $3 million and updated in 2009 for the same price brings an offer of $1.6 million.
The $1.6 million offer is the amount the investor is willing to pay to get the return he/she seeks - regardless of whether they are buying to stock pile for later sale or plan to develop immediately.

In selling your property, you need to assess the price you are willing to accept within your time frame and see if your objectives are in line with the realities of the market. If not,you must make adjustments or wait until the market does.

We can help you with this assessment.

Get Gu-ment Help

Two things you should know

1.If you qualify you can get a good loan through the SBA to purchase property for your business. Now is a good time to purchase property because land and buildings are cheap
You can buy an existing building or buy land and build as long as your business occupies 51% of the building.

2. A new accounting rule is coming out which will require tenants to carry their total lease payments as a liability on their balance sheet. Final regulations and interpretations will be out later in the year. In light of this rule it really makes sense to consider a purchase of a building for your business rather than lease.

We can help you get a 504 SBA loan. Contact us for more information.

How To Get A Business Loan

Getting a business loan is not easy especially in these times. There is a huge demand for money. Contrary to what their representatives say traditional banks are not making many loans with reasonable terms.

Money is available but it is a sellers market and all of the following rules apply if you want the loan.

You must be able to demonstrate that you need the money and what it will be used for and how this money will enhance your business.

You must prove that you have the experience to use the money to achieve the objective.

You must be able to prove that you can pay the money back

You must have sufficient collateral.

You must be willing to divulge to the lender all of your business and personal and financial information including bank statements and tax returns.

You must have a business plan which includes every detail and contingency including contingencies for untimely deaths, disabilities and an exit strategy.

The business plan must be summarized in a one page summary called an executive summary. The effectiveness of the executive summary will determine whether the loan underwriter will read further, issue a term letter or dash your hopes in the trash can.

Your personal credit score must be close to 700.

This applies to anyone who has a 20% or greater ownership interest in your business.

You must realize that you get no benefit of the doubt.

Let me know if you have any questions or if we can assist you in getting a business loan.