By: Mike Lease
The big question is not if but when. Interest rates are at historic all time lows and the one thing the economic experts agree upon is they are going to rise again. Most speculate that once rates begin to increase they will do so at a furious pace.
The difference between a $500,000.00 loan at 5.25% today and one at an 8% rate over a 20 year term is over $200,000.00. That translates into $833.00 per month more in loan payment. You’ve heard people say that “there is never been a better time to be in debt.” That saying has never been as true as it is today.
The current federal administration has curtailed the waiving of administrative and guarantee fees on its Small Business Administration 504 and 7A loans. No one looks for this to change in the coming months but that alone does not necessarily mean that SBA is not the best way for the owner occupant to proceed for financing. You can still do 10% down on SBA where as conventional requires a minimum of 20% to 30%and the loan can be amortized up to 25 years verses 15 to 20 on conventional. Both are very attractive options. My only warning *** USE ONLY SBA PREFERRED LENDING PROGRAM (PLP) *** we have seen too many projects stuck in the proverbial mud waiting on a bank without PLP status. A preferred lender does all approvals in house and sends to SBA funding. A standard bank packages the loan documents as it would for loan committee approval and forwards this package on to SBA for their approval. This adds another month and one half to the process maybe longer if the Bank doesn’t process the SBA package correctly. The 7A loan is attractive for tenant improvements as well as ground up projects. Equipment can be included in this loan as well as working capital if desired. One loan that does it all with only 10% down, 25 years amortization and no early pay off penalty.