Creative financing in a challenging economy

Many businesses and nonprofits are anxious despite the uncertain economy to lock into the current low real estate prices and low interest rates. They recognize that this may be the best time in recent history to buy their own locations, start building equity for their companies and families, and establish stability. Recent columns have talked about capital access-money still available for capital projects. Other media keep harping on lack of capital access, however. So, this article will reconfirm some of the creative financial resources still active and available for your business and nonprofit customers to help in their purchase of commercial space: SBA 504- In spite of the credit crisis gripping our economy, the SBA 504 program continues on - strong, well funded and still lending to small businesses. Although there is no question that most financial institutions have tightened their credit criteria or slowed lending for commercial expansion, the SBA 504 product helps them keep serving small businesses. SBA 504 is funded by the issuance of bonds, pooled and sold to major institutional investors because of the 100% SBA guarantee of the pool. This full faith and credit backing for the 504 loans has attracted more investors in the "flight to quality environment." 504 pool issuance has actually increased almost 6% for the year ended 9/30/08 to a record $5 billion. Investor base for the 504 pool has greatly expanded due to the security of the product, its liquidity in this market and the 27 year record of regular calendars and clear pricing rationales. Interest rates on the 504 loans have remained in a fairly stable range throughout this crisis. Lenders who want to keep lending use the SBA 504 subordinate lien loan to support their lending. It minimizes the lender's risk, lowers the lenders' loan to value ratios, and helps the buyer put less money down and receive an affordable financing package. The low down payment needed in a 504 transaction lets the buyer keep money for working capital needs and to put on deposit with the lender. 504 loans can be used for real estate (land, building, condo, co-op) acquisition, renovation, construction or major equipment purchases. SBA 504 companies (existent throughout the region) are doing business as usual and will continue to do so for the long haul. New Market Loan Fund- Another innovative financing tool is the New Market Loan Fund - provided through intermediaries by the nationally renowned Community Reinvestment Fund. Sources of money for this fund are varied - ranging from triple A rated bond sales to federal treasury new market tax credits and national bank lines of credit. This money is used for economic and community development projects with a capital asset theme. Basically, the new market fund is a subordinate lien loan sitting behind a bank or other lender to help a business or not-for-profit acquire or refinance its facility. It can be added to SBA 504 for an eligible project to provide a larger second lien loan (up to $7 million). It can be used for small business projects where the project is not eligible for SBA 504. And it can be used for nonprofit entities. Just like SBA 504, conventional lenders look to the new market loan to support the first lien position and minimize risk. So, lenders will finance transactions they might otherwise reject just because they have a new market loan in the deal. Given that real estate prices and interest rates are at historic low levels, this environment represents an opportunity for a business owner or nonprofit operator to acquire more space, fix their location, stabilize their location and costs, and build equity with a real estate purchase. As a commercial real estate broker you can be there to help with the support of these innovative financing programs. Roslyn Goldmacher is a licensed real estate broker in N.Y. as well as president/CEO and founder of the Long Island Development Corp. & The Greater N.Y. Development Co.