A variety of economic factors and government incentives aligned to result in a real surge in SBA 504 loan approvals if the first quarter of 2011. There was a 20 percent increase in the value of loans approved and a second consecutive quarterly increase of 13 percent or more for the first fiscal quarter of 2011 (the period ended December 31, 2011). These figures are derived from reports from the National Association of Development Companies (NADCO) based on U.S. Small Business Administration data.
The SBA 504 loan program provides long-term, fixed rate, government-guaranteed loans for small businesses to finance the purchase, construction, and renovation of commercial real estate, as well as the acquisition and installation of heavy machinery and equipment.
"This increased level of activity is a tell-tale demonstration of the confidence small to mid-size businesses have in the future of the United States economy," said Christopher L. Crawford, president and chief executive officer, NADCO. "This is an even better sign than Wall Street market advances that we are growing and moving forward. It's the best indicator I have seen in some time."
Crawford attributes the increase in activity to small business optimism and the Small Business Jobs and Credit Act of 2010, enacted in September 2010. This legislation, according to Crawford, made SBA 504 loans more attractive and attainable. Under the new law, the amount of the guaranteed loan that can be made by a Certified Development Company (CDC) increased to $5.5 million from $4.0 million and the net worth requirements of the borrowing company expanded to $15.0 million from $8.5 million. The new law also opened the door for SBA 504 loans to be temporarily used for loan refinancing.
"You can't find a bank that will loan at a 20-year fixed rate on commercial real estate with only 10 percent down," Crawford said. "We are the best long term credit program today."
Also aiding the attractiveness of the 504 program was the waiving of the CDC processing fee and the Third-Party Participation fee through the end of the 2010 calendar year. With all of these factors in place, according to Crawford, there were great incentives for small businesses to apply for loans by the end of the calendar year.
Highlights of the first quarter activity report, which is based on statistics provided by the SBA, include:
"Through the end of December, small businesses had tremendous opportunities and incentives to take that leap of faith and make an investment in their business through real estate," Crawford said. "Historic low interest rates, the waiver of certain fees and broader qualification parameters for loans created the perfect windfall for small business owners who are the real backbone of our economy."
NADCO is the trade association for the nation's Certified Development Companies (CDCs). Its members are non-profit organizations that have been certified by the U.S. Small Business Administration (SBA) to provide financing to small businesses through the SBA 504 loan program.
In a traditional SBA 504 loan, a bank provides the first mortgage at 50 percent of the eligible financing, a Certified Development Company (CDC) provides a second mortgage equal to 40 percent of the eligible financing, and the borrower puts 10 percent down. Conventional lending often calls for 25 to 35 percent down in this market (if not more), so the out-of-pocket savings is significant.
The more than 2,300 loan approvals in the first fiscal quarter represented the most loan approvals in the first quarter in the last 10 years, and an increase of 13 percent from last quarter in 2010. It also represented the second consecutive quarterly increase in the number of SBA 504 loans approved. It was the greatest number of loans approved since the fourth quarter of 2009 when 2,475 loans were approved.
According to Crawford, the regulations for using SBA 504 loans to refinance existing debt included in the Small Business Jobs Act that were just approved, are expected to give the overall program another huge boost. Loan approvals can be expected to increase at least ten percent through the balance of the fiscal year due to refinancing by small businesses. He expects that number may increase as much as 15 to 30 percent in 2012 when the program will be in effect for the entire year until its conclusion in September 2012.
The continued increase in the number of loans approved translated to an even more substantial increase in the value of loans approved. The almost $1.4 billion in approved loans represents a 20.2 percent increase from last quarter and the second consecutive quarter loan totals have increased. Moreover, it was the sixth consecutive quarter when the value of loans approved exceeded $1 billion, and the highest amount since fourth quarter of 2009 when more than $1.4 billion in loans were approved.
Also on the increase in the first quarter was the average loan value. For the first time in three quarters, since second quarter 2010, the average loan value increased, from $546,945 to $579,241--a 5.9 percent jump. The average loan value remains down from a high water mark of almost $610,000 in the first quarter of 2009.
"Given the almost universal 20 to 40 percent decline in property values, it is not surprising that average loan values are down from historic levels achieved a few years ago," Crawford said. "With a recovery in its infancy and the belief that values have hit bottom, we are likely to see a gradual increase in loan values."
During the first fiscal quarter, the states with the most approved loans (and the number of loans approved) were California (469), Florida (180), Texas (135), Illinois (127), and Ohio (98). The states with the highest value of approved loans (and the dollar value of loans approved) were California ($328.8 million), Texas ($91.4 million), Florida ($87.7 million), Illinois ($78.3 million) and New York ($64.4 million).
The top five states in terms of the average loan value for the quarter were Mississippi ($1,670,800), New Jersey ($899,385), Kansas ($820,600), Wyoming ($820,000) and South Dakota ($705,889). These states had fewer than 10 loan approvals during the quarter.
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