FLORIDA SMALL BUSINESS DEVELOPMENT CENTER AT IRSC
38
SBA LOAN CAN HELP FINANCE
REAL ESTATE PURCHASE
TCBusiness.com
Are you looking to finance a commercial
real estate or industrial equipment purchase
for your growing small business?
If so, a specific type of SBA loan may be
right for you.
Katherine Culhane, associate director
of the Florida SBDC at Indian River State
College, says many small businesses don’t
know about — or don’t understand the
SBA 504 loan program. This particular loan
program provides small business owners
the advantage of a lower equity injection,
allowing them to preserve more of their
existing working capital.
Treasure Coast Business Magazine spoke
to Deborah Petrell, senior vice president of
sales and marketing manager with Florida
First Capital Finance Corp., about ways the
504 loan program may be a good source
for growth capital for small businesses.
Florida First Capital Finance Corp. is a CDC,
or a Certified Development Company, a
not-for-profit agent for the SBA for the 504
program for Florida. As the most active
CDC in the state and the third-largest in
the country, “We specialize in the 504 loan
program,” said Petrell. “It’s all we do.”
To be sure, the SBA has a variety of loan
programs for small business owners, from
business acquisition to export working
capital. But the 504 program is specifically
for the acquisition of owner occupied
commercial real estate as well as industrial
equipment.
The way 504 loans are typically structured
is that lending institutions are the
first mortgage holder and provide 50
percent of the financing; the U.S. Small
Business Administration (with Florida First
Capital) finances 40 percent at below market
rates, and the small business owner
injects 10 percent.
Banks like to make the loans because
they reduce their risk, and small businesses
preserve precious growth capital
because they put in 10 percent rather than
the typical 20 percent. Another advantage
is that the business borrower is mitigating
interest rate risk by doing 40 percent fixed
for the life of the loan at below market
rates, Petrell said.
504 lending has been on the increase
over the last year, Petrell said. Florida First
Capital Finance Corp. made 303 loans in
CY 2019, representing more than $274 million
in SBA dollars representing more than
a $759 million capital investment in real
estate and equipment.
The vast majority of those loans were for
owner occupied commercial real estate.
That’s because every business needs a
place to operate but not necessarily industrial
equipment, she said, and “the SBA 504
Program is most commonly associated with
real estate and many lenders aren’t aware
that we’re able to finance equipment.”
SO LET’S GET DOWN TO BASICS:
Will my small business qualify?
The loans typically are available to forprofit,
credit worthy businesses, with a
tangible net worth of not more than $15
million and average net income after taxes
for the preceding two fiscal years of not
more than $5 million.
How can I use the funds?
For real estate loans, funds can be used
for the acquisition of land and existing
buildings, expansion and renovation, including
parking lots and landscaping, and
green energy initiatives. For machinery:
Long-life fixed machinery and equipment.
A 504 loan cannot be used for working
capital or inventory, goodwill assets, business
stock acquisition and franchise feels.
What are the loan amounts and
repayment terms?
For real estate loans, the SBA portion is
capped at $5 million but there is no limit
on project size. For example, Florida First’s
largest project was a $20.5 million construction
project. The limits are higher for
energy efficient projects. For equipment,
the SBA cap is $5.5 million per eligible
project. Terms: below market, fixed interest
rates with 10-, 20- and 25-year terms.
For real estate, this is all-in project
financing, covering remodeling, fixtures,
furniture, closing costs etc. In 2019, the
Florida First office was doing 25-year fixed
real estate loans at an effective rate of 3.582
percent. The business must be at least 51%
occupied by the small business owner.
For industrial equipment, loans are
typically north of $500,000; large medical,
manufacturing or printing equipment is
typical. The office recently did a $4 million
loan for a glass manufacturer. In March,
the 10-year-rate was available at 4.62%
interest rate.
Yes, but don’t SBA loans take a
long time?
Petrell says closing timelines are 60 to
90 days from when the necessary documentation
is received, similar to conventional
lending. “There is a misconception
that SBA loans take forever — that’s not
the case. Our average closing is 75 days.”
“The objective of the 504 is economic
development and job creation. There are
situations where the borrower has the 20%
to go with conventional financing but injecting
all that capital would restrict them
from future growth and hiring,” Petrell said.
“It’s important to give the small business
owner the option of the SBA loan.”
For more information on SBA 504 loans,
go to www.floridafirst.com. v
BY NANCY DAHLBERG
Katherine Culhane, Associate Director for the
Florida SBDC at IRSC, consults with businesses
to help them achieve their full potential. Her
background includes a long career in banking
that comprises roles in management, business
development, commercial lending and
private banking. She has a master of science
degree in organizational learning and leadership
and is a certified professional behavioral
analyst with DISC- Style Insights as well as a
senior certified professional with the Society
of Human Resources (SHRM).
/TCBusiness.com
/www.floridafirst.com