SBA 504 program continues lending in spite of credit crisis

In spite of the credit crisis that has gripped many financial institutions and slowed lending for commercial expansion, SBA 504 loans are still available for small businesses. SBA 504 has a continuous steady source of funding. Since loans are backed by full faith and credit of the U.S., investors are actually flocking to this quality product. The program has been rock steady throughout the now 14 months, long crisis in the credit markets and investor interest in the 504 product has actually expanded recently. Loans are still available for businesses seeking to expand through real estate acquisition, renovation, construction, or major equipment purchases. SBA 504 companies such as Long Island Development Corp. (LIDC), SBA and their banking-lending partners are doing business as usual and will continue to do so for the long haul. 504 loans provide a steady source of new long-term capital at a low fixed-rate and low down payment, helping businesses to conserve their cash for operating expenses. Given that real estate prices and interest rates are at historically low levels, this environment represents an opportunity for a small business owner who needs more space or wants to stabilize their location and costs with real estate purchase. Use of the SBA 504 loan has become increasingly important as a source of long-term financing as traditional sources of money tighten their credit criteria. Banks and other conventional lenders are using the SBA 504 subordinate mortgage money even more to minimize their risks in this economy. Virtually all of the industry's lending partners are still actively lending on projects when they have the SBA 504 loan in subordinate lien position. The SBA 504 loan program remains a great program for banks and non-bank lenders, since it mitigates private sector lender risk on commercial real estate financing through the use of an SBA guarantee. The program is great for the small businesses because it lowers their down payment on capital projects and provides an affordable financing package. Funds for the SBA 504 loan program come from the sale of long-term bonds each month. These bonds carry the full faith and backing of the U.S. government and present an attractive investment option for money managers, pension funds, insurance companies and other large institutional investors. The sales of SBA 504 bonds, known as debentures, have been successfully conducted every month for the past 27 years and such bonds are even more popular now due to the SBA guarantee. 504 cost the federal government absolutely nothing, since the low default rate costs are covered by the program's low fees. There is no congressional appropriation of funds for 504. 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.