loan programs

[Jimmy Buffett]

At my real job we are out of space and are going to buy the rest of the floor. It's going to cost about $500k. I guess that I have been totally spoiled by my loan through Farm Credit. Are there any decent programs out there now? 6 of us are going together to make the purchase. We talked to 1 bank about the 504 SBA program (40% SBA) but we were all underwhelmed. Is there anything good out there? We have already made the offer and expect it to be accepted.
Thanks

 

[Waxman]

2 questions;

1. Why do you feel you need to do better than the current business loan rates available at commercial banks? Sounds like the loan will be secured, so banks will have what they need to do business w/you.

2. If this is for your real job, as you say, how have you and the partners secured financing previously? I'm surprised you don't already have some solid banking relationships to utilize, instead of us (not that I mind ).

 

[Jimmy Buffett]

1. Because I want to lock the rate for more than 5 years.
2. See #1

 

[Waxman]

I had no problem getting an excellent rate and fixed for the term of the loan. SBA is fixed as well, and the rate sets when the debenture sells.

 

[Jimmy Buffett]

The rates are excellent. SBA will lock in for 20 years but the bank will only lock for 5. This isn't income producing space like a cw, it's office space so we need a 20 year amortization. In the 504 program SBA only takes 40% and the bank 50% so for 15 years we would have half the note at a rate that we cannot predict. I don't like that. The SBA also has a silly "job creation" clause attached so the politicians can pretend that they "created" jobs. It's really a farce. I would play that game if they were doing the whole loan but not for 40%. You get all of the disadvantages of dealing with the govt for less than half the advantages.
My experience with this site is that many car wash owners are very innovative folks. I wanted input from the innovators. Sorry if it rubbed you the wrong way.

 

[Waxman]

Not at all; I was just saying my own experience. Definitely I am new to finance. But you're stuck with me until the real innovators reply! (a joke).

 

[Jimmy Buffett]

I got a note in the mail today telling me that they are lowering my cw loan to 4.15% and it's locked in for 10 years. That's what makes the banks and sba hard to stomach.

 

[Alan Bussey]

Jimmy -

It seems that the loan size may be too small to get the serious attention of most banks as a 504. Now, if you want to refinance other loans in this same business it may be large enough to be attractive to more banks. But even then, because of the modest amount of new money that you need, the maximum loan size with refinancing may still be too small. I, too, try to stay well above the loan size that you indicated.

As far as a fixed rate for longer than 5 years on the 40% is concerned, you may be unfortunately looking in unproductive places. The market is reversed right now, where the secondary market is paying a higher premium for fixed rate 504 first lien loans (even smaller ones) rather than floating rate first lien loans, as is usual.

Jimmy, there are several legal and realistic ways prescribed in the regulation that allow waiver of the job creation/job preservation requirement. Did a loan officer ask you questions about those?

Alan Bussey

 

[Jimmy Buffett]

We are not having a problem getting a bank interested in doing the 504, there are 3 that want to do it. I just don't like the terms. The ownership of this side will be slightly different from the ownership of the other side so we can't really put them together.
The "job creation" portion is not really a stumbling block because I'm sure it's a joke. Just another way for Washington to pretend to create jobs.
Are there not any programs where a loan can be locked in for 20 years under 6%?

 

[rph9168]

Who owns the space now? Would they consider a lease/purchase agreement?

 

[Alan Bussey]

Jimmy -

The job creation requirement is serious business and it does rreally work to provide incentive for businesses to hire new employees. There are waivers of the requirement depending upon other specific public policy objectives, such as locating in excess labor areas or significantly reducing energy consumption.

I am not aware of any 20 or 25-year fixed-rate fully-amortizing 1st lien loans at less than 6%. Of course the 504 second lien loan is exactly that. Most borrowers in the 504 program view this as a plus. The second lien fixed rate holds down the overall interest rate that you'll ever pay.

Seriously, Jimmy, I would not wait any longer to get a 504 because rates are creeping up. The longer you wait, the higher they are likely to be.

Alan Bussey

 

[Jimmy Buffett]

Well, we will have to wait until they accept our offer...