Thursday, October 22, 2009
Improvements to Commercial Real Estate Credit Markets
2:37 pm pdt
In March of this year, as part of the American Recovery & Reinvestment
Act, fees on SBA 504 loans were cut out, and guarantees were increased to as much as 90%. That helped spur about $13 billion
in new lending that had stopped lwhen the financial crisis began. The SBA 504 loan program provides long-term,
fixed-rate financing to acquire fixed assets (such as real estate or equipment) for expansion or modernization. It is designed
for small businesses requiring “brick and mortar” financing.
As part of its efforts to stimulate economic recovery, the Obama Administration announced on October 21st
a new set of initiatives to help spur lending to small businesses. The initiatives will use the Troubled Asset Relief Program
to lower the cost of capital for smaller banks and community development financial institutions that present plans to the
Small Business Administration for increased lending through the SBA's flagship 504 program. It will also more than double
the maximum size limit of some of its guaranteed loans to small business owners.
Specifically, the SBA plans to increase the maximum size of its 504 loans, used most typically
for purchase of land, buildings, and equipment, to $5 million from their current size limit of $4 million. Another Administration
official noted new initiatives will lower the rate at which banks can access capital—in some cases to as low as 2%,
rather than the current 5% rate.