The Negative Features - SBA Mortgages
August 31st, 2010
SBA mortgages have become very popular in the last 12 months due to the general economy, the banking crisis that has all but eliminated conventional commercial loans and because of the Stimulus Package the was rolled out in March of 2008.
Despite the fan fare, SBA mortgages come with their own set of issues that business owners should be aware of them before they make their decision to go forward with one or not. Here’s the overview of the common complaints of SBA mortgages. 1. Quirky set of underwriting rules that often defy common sense. 2. Adjustable rates on the popular SBA 7a loan and 3. High prepayment penalties on the SBA 504 loan.
SBA Mortgages - Quirks
With any government entity there are often agendas that are either political or out of touch with reality. Probably the biggest issue here is just the overall process of getting an SBA loan closed and the complex set of rules and guidelines that banks and lender have to follow in order to ensure that they will get the SBA guarantee.
For example the typical SBA loan takes 75 -90 days to close. Conventional loans normally take 60 - 75 days to close. The forms and procedures for both the bank and the borrower are much less cumbersome on conventional loans and there is more flexibility with getting exceptions on non SBA loans as wells.
However, it is important to point out that the SBA has done much in the last 3 -5 years to make the system more efficient and seamless. For example they cut the SOP (the Standard Operating Procedural Book down from 800 pages to 300 to help underwriters grasp the rules easier).
It is also very important for borrower to only work with very experienced firms in the SBA field. The last thing you want to do is go with a bank that has only done a few SBA mortgages as they will likely add an additional 60 to 90 on top of the typical 75 day process. So business owners should do their shopping as well as make sure that their timing restraints make the realities of the closing process.
Critical Considerations
This investment strategy should be undertaken to minimize risk. Minimizing risk in this cash is accomplished through three factors:
Factor 1 — Launch the investment with a well established and proven property management capacity. Build this function with proven accounting, proven collections, proven property maintenance, advanced and proven marketing and leasing and a well planned customer service plan.
Factor 2 — Buy with equity and keep leverage very low (40% to 60%). 50% is recommended and on improved performance not initial performance (1 to 2 years after purchase).
Factor 3 — The strategy will require a strong Internet marketing and market research capability because renters are using the Internet at ever increasing rates to find their next home.
Take time to explore the place and look for a perfect place that will suit your business. you can also ask a real estate agent to help you out in looking for a Florida commercial real estate that has a lot of benefits to offer in starting a business. Typically, commercial buildings on Florida are really perfect to start a business; it is just a matter of what kind of business you will enter and on how you will market your product or services
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